Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Fiscal Year Ended December 31, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ___________________ to
______________________
Commission
File Number: 0-50820
First
Clover Leaf Financial
Corp.
(Exact
Name of Registrant as Specified in its Charter)
Maryland
|
20-4797391
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
6814 Goshen Road, Edwardsville,
Illinois
|
62025
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(618) 656-6122
|
(Issuer’s
Telephone Number including area
code)
|
Securities
Registered Pursuant to Section 12(b) of the Act:
Name
of Each Exchange
|
||
Title of Each Class
|
On Which Registered
|
|
Common
Stock, par value $0.10 per share
|
The
NASDAQ Stock Market, LLC
|
Securities
Registered Pursuant to Section 12(g) of the Act:
None
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES o NO x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
YES o NO x
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file reports), and (2) has been subject to such requirements for the past 90
days.
(1) YES x NO o
(2) YES x NO o
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or such shorter period that the Registrant was required to submit and
post such files). YES o NO o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated
filer o Accelerated
filer o
Non-accelerated
filer o Smaller
reporting
company
x
(Do not
check if smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES o NO x
As of
June 30, 2009 the aggregate market value of the voting and non-voting common
stock held by non-affiliates of the Registrant, computed by reference to the
closing price of the common stock as of June 30, 2009 ($7.10 per share) was
$47.9 million.
As of
March 31, 2010, there were approximately 7,951,900 shares issued and outstanding
of the Registrant’s Common Stock, par value $.10 per share.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
|
Proxy
Statement for the 2010 Annual Meeting of Stockholders (Parts II and
III).
|
2.
|
Annual
Report to Stockholders for the year ended December 31, 2009 (Part
II).
|
2
PART
I
ITEM
1.
BUSINESS
Forward-Looking
Statements
This
Annual Report contains certain “forward-looking statements” which may be
identified by the use of words such as “believe,” “expect,” “anticipate,”
“should,” “planned,” “estimated” and “potential.” Examples of
forward-looking statements include, but are not limited to, estimates with
respect to our financial condition, results of operations and business that are
subject to various factors which could cause actual results to differ materially
from these estimates and most other statements that are not historical in
nature. These factors include, but are not limited to, general and
local economic conditions, changes in interest rates, deposit flows, demand for
mortgage, commercial and other loans, real estate values, competition, changes
in accounting principles, policies, or guidelines, changes in legislation or
regulation, and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing products and
services.
General
First
Clover Leaf Financial Corp. (“First Clover Leaf”) is a Maryland corporation that
was incorporated on March 17, 2006 and was formed by our predecessor company,
First Federal Financial Services, Inc., in connection with the “second-step”
conversion of First Federal Financial Services, MHC and the simultaneous
acquisition of Clover Leaf Financial Corp. and its wholly owned savings bank
subsidiary, Clover Leaf Bank, a former Illinois bank headquartered in
Edwardsville, Illinois. The second-step conversion and stock offering and the
simultaneous acquisition of Clover Leaf Financial Corp. were consummated on July
10, 2006. As a result of these transactions, Clover Leaf Financial Corp. was
merged with and into First Clover Leaf and Clover Leaf Bank was merged with and
into our wholly owned subsidiary, First Federal Savings and Loan Association of
Edwardsville, which was renamed First Clover Leaf Bank.
On
October 10, 2008, we completed our acquisition of Partners Financial Holdings
Inc. (“Partners”), the holding company of Partners Bank (“Partners Bank”), an
Illinois state bank located in Glen Carbon, Illinois. In the acquisition,
Partners was merged with and into First Clover Leaf with First Clover Leaf being
the surviving corporation in the merger, and Partners Bank was merged with and
into First Clover Leaf Bank, with First Clover Leaf Bank as the surviving
institution.
Our
principal asset is our ownership of 100% of the outstanding common stock of
First Clover Leaf Bank, a federal savings bank.
At
December 31, 2009, we had total consolidated assets of $585.5 million, total
loans, net of $411.9 million, total deposits of $442.6 million and stockholders’
equity of $76.9 million. Our consolidated net loss for the year ended
December 31, 2009 was $8.8 million.
Our
headquarters are located at 6814 Goshen Road, Edwardsville, Illinois 62025, and
our telephone number is (618) 656-6122.
Our
website address is www.firstcloverleafbank.com.
Information on our website is not and should not be considered a part of this
Annual Report on Form 10-K. Our website contains a direct link to our filings
with the Securities and Exchange Commission, including copies of annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to these filings, if any. Copies may also be obtained, without
charge, by written request to Secretary, 6814 Goshen Road, Edwardsville,
Illinois 62025.
3
First
Clover Leaf Bank
General
We
conduct our business through our four branch offices located in Edwardsville and
Wood River, Illinois. Our principal business consists of attracting retail
deposits from the general public in the areas surrounding our office locations
and investing those deposits, together with funds generated from operations,
primarily in one- to four-family residential mortgage loans, commercial real
estate loans, multifamily mortgage loans, construction and land loans,
commercial business loans and consumer loans, and in investment
securities. Our revenues are derived principally from interest on
loans and securities. Our primary sources of funds are deposits and
principal and interest payments on loans and securities.
Competition
We face
intense competition within our market area both in making loans and attracting
deposits. The City of Edwardsville and the surrounding area have a
high concentration of financial institutions, including large commercial banks,
community banks and credit unions. We face additional competition for
deposits from short-term money market funds, brokerage firms, mutual funds and
insurance companies. Some of our competitors offer products and
services that we currently do not offer, such as trust
services. Based on Federal Deposit Insurance Corporation data as of
June 30, 2009 (the latest date for which information is available), our market
share of deposits was 10.4% of all deposits in Madison County making us the
fourth largest institution out of 26 institutions located in Madison County as
of that date. Our primary focus is to build and develop profitable
customer relationships across all lines of business while maintaining our role
as a community bank.
Market
Area
We
operate in a primarily suburban market area that has a
stable population and household base. According to the 2005 U.S.
Census Report, from 2001 until 2005, the population of Madison County increased
by approximately 3.6% to 268,191 while the population of the City of
Edwardsville increased 5.0% to 22,571. During the same period, the number of
households in Madison County and in the City of Edwardsville increased 5.0% and
6.6%, respectively. In 2005, per capita income for Madison County and
the City of Edwardsville was $23,851 and $28,974, respectively. This
compares to per capita income for the State of Illinois and the United States of
$27,097 and $26,228, respectively. Per the latest information
available for 2008, the median household income for Madison County was
$51,207. This compares to a median household income of $56,230 and
$52,029 for the state of Illinois and the United States,
respectively.
Our
primary lending area is concentrated in Madison County and the southern portion
of Macoupin County, Illinois. The City of Edwardsville is the County
Seat of Madison County and is considered a “bedroom community” for St. Louis,
Missouri, which is approximately 20 miles southwest of
Edwardsville. The economy of our market area is characterized by a
large number of small retail establishments and small
industry. Additionally, major employers in our immediate market area
include Southern Illinois University-Edwardsville, ConocoPhillips, the local
school district and the Madison County government. Our customer base
is comprised primarily of middle-income families. We believe that our
local market has not experienced as severe of a downturn as certain other areas
of the country, such as coastal states. While, in general, property
values in our market area have fallen, homes continue to sell, but, in many
cases, at a slower pace. As indicated above, the local area is not
heavily reliant on any one industry.
Lending
Activities
Our
principal lending activity includes the origination of first mortgage loans for
the purchase or refinancing of one- to four-family residential property, the
origination of commercial real estate loans, multi-family, commercial business
loans and construction and land loans, as well as home equity
loans.
One- to
four-family residential real estate mortgage loans represented $98.1 million, or
23.4%, of our loan portfolio at December 31, 2009, and commercial real estate
loans represented $179.9 million, or 42.8% of our loan portfolio at December 31,
2009. Multi-family loans represented $20.9 million, or 5.0% of our
loan portfolio at December 31, 2009. We also offer construction and
land loans secured by single-family properties and residential
4
subdivisions. Construction
and land loans represented $45.4 million, or 10.8%, of our loan portfolio at
December 31, 2009. We offer commercial business loans, and these loans
represented $63.1 million, or 15.0% of our loan portfolio, at December 31, 2009.
We originate consumer loans, including automobile loans and home equity loans,
which totaled $12.5 million, or 3.0% of our loan portfolio at December 31,
2009.
In an
effort to reduce the risk to our net income from changes in market interest
rates, in recent years we have emphasized the origination of commercial real
estate and commercial business loans. Compared to our residential
mortgage loans, commercial real estate and commercial business loans generally
have higher interest rates and are more sensitive to changes in market interest
rates because they often have shorter terms to maturity, and therefore, the
interest rates adjust more frequently. Our acquisition of Partners
Bank further increased our commercial real estate and commercial business loans,
as those types of loans represented the primary lending focus of Partners
Bank.
5
Loan Portfolio
Composition. The following table sets forth the composition of
our loan portfolio by type of loan at the dates indicated.
At
December 31,
|
||||||||||||||||||||||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||||||
Real Estate Loans:
|
||||||||||||||||||||||||||||||||||||||||
One-
to four-family residential loans(1)
|
$ | 98,080 | 23.4 | % | $ | 110,925 | 25.3 | % | $ | 112,764 | 39.2 | % | $ | 120,355 | 48.5 | % | $ | 97,594 | 83.0 | % | ||||||||||||||||||||
Multi-family
|
20,947 | 5.0 | 18,150 | 4.2 | 13,931 | 4.8 | 8,895 | 3.6 | 5,390 | 4.6 | ||||||||||||||||||||||||||||||
Commercial
|
179,923 | 42.8 | 168,432 | 38.4 | 97,810 | 34.0 | 68,577 | 27.7 | 11,074 | 9.4 | ||||||||||||||||||||||||||||||
Construction
and land
|
45,448 | 10.8 | 52,338 | 11.9 | 20,776 | 7.2 | 17,181 | 6.9 | 2,317 | 1.9 | ||||||||||||||||||||||||||||||
Total
real estate loans
|
344,398 | 82.0 | 349,845 | 79.8 | 245,281 | 85.2 | 215,008 | 86.7 | 116,375 | 98.9 | ||||||||||||||||||||||||||||||
Commercial
business
|
63,135 | 15.0 | 78,160 | 17.8 | 34,783 | 12.1 | 25,907 | 10.4 | ― | ― | ||||||||||||||||||||||||||||||
Consumer Loans:
|
||||||||||||||||||||||||||||||||||||||||
Automobile
|
1,383 | 0.3 | 1,318 | 0.3 | 1,355 | 0.5 | 2,028 | 0.8 | 1,081 | 0.9 | ||||||||||||||||||||||||||||||
Home
equity
|
9,871 | 2.4 | 7,145 | 1.7 | 5,119 | 1.8 | 3,364 | 1.4 | ― | ― | ||||||||||||||||||||||||||||||
Other
|
1,223 | 0.3 | 1,807 | 0.4 | 1,296 | 0.5 | 1,733 | 0.7 | 176 | 0.2 | ||||||||||||||||||||||||||||||
Total
consumer loans
|
12,477 | 3.0 | 10,270 | 2.4 | 7,770 | 2.7 | 7,125 | 2.9 | 1,257 | 1.1 | ||||||||||||||||||||||||||||||
Total
loans
|
420,010 | 100.0 | % | 438,275 | 100.0 | % | 287,834 | 100.0 | % | 248,040 | 100.0 | % | 117,632 | 100.0 | % | |||||||||||||||||||||||||
Less:
|
||||||||||||||||||||||||||||||||||||||||
Undisbursed
portion of construction loans
|
1,773 | 3,402 | 860 | 1,257 | 1,422 | |||||||||||||||||||||||||||||||||||
Deferred
loan origination fees, net
|
21 | 59 | 157 | 48 | 137 | |||||||||||||||||||||||||||||||||||
Allowance
for loan losses
|
6,317 | 3,895 | 1,898 | 1,710 | 428 | |||||||||||||||||||||||||||||||||||
Total
loans, net
|
$ | 411,899 | $ | 430,919 | $ | 284,919 | $ | 245,025 | $ | 115,645 |
____________________
(1) At
December 31, 2009, 2008, and 2006 there were $1.8 million, $240,000, and $1.0
million respectively, in loans held for sale.
6
Loan Portfolio Maturities and
Yields. The following table summarizes the scheduled
repayments of our loan portfolio at December 31, 2009.
One-
to Four-Family
|
Multi-Family
|
Commercial
Real Estate
|
Construction
and Land(2)
|
|||||||||||||||||||||||||||||
Amount
|
Weighted
Average Yield
|
Amount
|
Weighted
Average Yield
|
Amount
|
Weighted
Average Yield
|
Amount
|
Weighted
Average Yield
|
|||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||
Due
During the Years
Ending December 31,
|
||||||||||||||||||||||||||||||||
2010
(1)
|
$ | 3,488 | 5.56 | % | $ | 8,762 | 6.06 | % | $ | 49,324 | 5.93 | % | $ | 25,836 | 5.66 | % | ||||||||||||||||
2011
to 2014
|
26,351 | 4.99 | 11,561 | 6.00 | 110,888 | 6.10 | 18,021 | 5.49 | ||||||||||||||||||||||||
2015
and beyond
|
68,241 | 5.46 | 624 | 5.05 | 19,711 | 5.88 | 1,591 | 5.73 | ||||||||||||||||||||||||
Total
|
$ | 98,080 | 5.34 | % | $ | 20,947 | 6.00 | % | $ | 179,923 | 6.03 | % | $ | 45,448 | 5.60 | % |
Commercial
Business
|
Consumer
Loans
|
Total
|
||||||||||||||||||||||
Amount
|
Weighted
Average Yield
|
Amount
|
Weighted
Average Yield
|
Amount
|
Weighted
Average Yield
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
Due
During the Years
Ending December 31,
|
||||||||||||||||||||||||
2010
(1)
|
$ | 26,004 | 5.25 | % | $ | 5,354 | 5.46 | % | $ | 118,768 | 5.70 | % | ||||||||||||
2011
to 2014
|
32,560 | 5.96 | 4,506 | 6.28 | 203,887 | 5.88 | ||||||||||||||||||
2015
and beyond
|
4,571 | 5.95 | 2,617 | 5.34 | 97,355 | 5.59 | ||||||||||||||||||
Total
|
$ | 63,135 | 5.67 | % | $ | 12,477 | 5.94 | % | $ | 420,010 | 5.76 | % |
____________________
(1) Includes demand loans,
loans having no stated repayment schedule or maturity, overdraft loans and loans
in process of renewal.
(2)
Includes land acquisition loans.
The
following table sets forth the scheduled repayments of fixed- and
adjustable-rate loans at December 31, 2009 that are contractually due after
December 31, 2010.
Due
After December 31, 2010
|
||||||||||||
Fixed
|
Adjustable
|
Total
|
||||||||||
(In
thousands)
|
||||||||||||
One-
to four-family residential loans
|
$ | 80,790 | $ | 13,802 | $ | 94,592 | ||||||
Multi-family
|
11,670 | 515 | 12,185 | |||||||||
Commercial
real estate
|
113,989 | 16,610 | 130,599 | |||||||||
Construction
and land
|
15,860 | 3,752 | 19,612 | |||||||||
Total
real estate loans
|
222,309 | 34,679 | 256,988 | |||||||||
Commercial
business
|
24,385 | 12,746 | 37,131 | |||||||||
Consumer
loans
|
6,785 | 338 | 7,123 | |||||||||
Total
loans
|
$ | 253,479 | $ | 47,763 | $ | 301,242 |
7
One- to
Four-Family Residential Real Estate Loans. As of December 31,
2009, one- to four-family residential loans totaled $98.1 million, or 23.4% of
our total loan portfolio. These loans are predominately
collateralized by properties located in our market area. Virtually
all of our residential real estate loans have fixed rates of interest primarily
because our customers prefer fixed-rate mortgage loans in the relatively low
interest rate environment that currently exists. We generally sell
most of the conforming, fixed-rate loans that we originate, but we generally
retain the servicing rights on these loans. At December 31,
2009, we were servicing $70.9 million in loans for others. In 2009, we originated
$29.5 million and sold $27.9 million in single family residential mortgage loans
to the Federal Home Loan Bank as a conduit for Fannie Mae.
We
currently offer one- to four-family residential mortgage loans with terms of
five, seven, 10, 15, 20, 30 and 40 years. Our five and seven-year
loans provide for principal and interest amortization of up to 30 years with a
balloon payment at the end of the five or seven-year term. All of our
loans with terms of 10 years or greater amortize over the term of the
loan.
For one-
to four-family residential real estate loans, we may lend up to 80% of the
property’s appraised value, or up to 100% of the property’s appraised value if
the borrower obtains private mortgage insurance. We require title
insurance on all of our one- to four-family mortgage loans, and we also require
that fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount equal to at least the lesser of the loan
balance or the replacement cost of the improvements on the
property. We require a property appraisal for all mortgage loans that
are underwritten to comply with secondary market standards. Appraisals are conducted
by independent appraisers from a list approved by our board of
directors. Our residential real estate loans include “due-on-sale”
clauses.
As a
result of our conservative underwriting standards, we do not have any loans in
our loan portfolio that are considered sub-prime or Alt-A.
Commercial Real
Estate Loans. Loans secured by
commercial real estate totaled $179.9 million, or 42.8% of our total loan
portfolio as of December 31, 2009. Our commercial real estate loans are secured
predominately by office buildings, and to a lesser extent warehouse properties,
and more specialized properties such as churches. We originate
commercial real estate loans with a typical term of five years with balloon
payments. These loans generally amortize over 15 to 20 years. We
offer both adjustable and fixed rates of interest on commercial real estate
loans, with the interest rate for adjustable rate loans tied to the prime
interest rate. Our largest commercial real estate loan at December
31, 2009 had a principal balance of $4.8 million and was collateralized
primarily by a new car dealership, and a condominium and commercial
development. This loan was performing in accordance with its
repayment terms as of December 31, 2009.
Commercial
real estate loans generally have higher interest rates than the interest rates
on residential mortgage loans, and are more sensitive to changes in market
interest rates because they often have shorter terms to maturity, and therefore,
the interest rates adjust more frequently. Commercial real estate
loans often have significant additional risk compared to one- to four-family
residential mortgage loans, as they typically involve large loan balances
concentrated with single borrowers or groups of related borrowers. In
addition, the repayment of commercial real estate loans typically depends on the
successful operation of the related real estate project, and thus may be subject
to a greater extent than residential mortgage loans to adverse conditions in the
real estate market or in the economy generally.
In our
underwriting of commercial real estate loans, we may lend up to 80% of the
property’s appraised value in the case of loans secured by multi-family real
estate, and up to 75% of the property’s appraised value on loans secured by
other commercial properties. We require independent appraisals for all
commercial real estate loans in excess of $250,000. For loans that do
not exceed this amount, we require that one of our officers prepare a memorandum
of value detailing comparable values based upon tax bills, prior appraisals, and
income information on revenue-producing property. Decisions to lend
are based on the economic viability of the property and the creditworthiness of
the borrower. Creditworthiness is determined by considering the
character, experience, management and financial strength of the borrower, and
the ability of the property to generate adequate funds to cover both operating
expenses and debt service. In evaluating whether to make a commercial
real estate loan, we
8
place
primary emphasis on the ratio of net cash flow to debt service on the property,
and we generally require a ratio of cash flow to debt service of at least 120%,
computed after deduction for a vacancy factor and property expenses we deem
appropriate.
We
require title insurance on all of our commercial real estate loans, and we also
require that fire and extended coverage casualty insurance (and, if appropriate,
flood insurance) be maintained. In addition, we generally require
that the borrower personally guarantee the repayment of the loan.
Construction and
Land Loans. As of December 31, 2009, construction and land
loans totaled $45.4 million, or 10.8%, of our total loan
portfolio. This portfolio consists of construction/speculative loans
and construction/permanent loans.
Construction/speculative
loans are made to area homebuilders who do not have, at the time the loan is
originated, a signed contract with a homebuyer who has a commitment for
permanent financing with either First Clover Leaf Bank or another
lender. The homebuyer may enter into a purchase contract either
during or after the construction period. These loans have the risk
that the builder will have to make interest and principal payments on the loan,
and finance real estate taxes and other holding costs of the completed home for
a significant time after the completion of construction. Funds are
disbursed in phases as construction is completed. All
construction/speculative loans require that the builder-borrower personally
guarantee the full repayment of the principal and interest on the loan and make
interest payments during the construction phase. These loans are
generally originated for a term of 12 months, with interest rates that are tied
to the prime lending rate. First Clover Leaf Bank recognizes the
relative increased risk element for these types of loans, particularly in the
current real estate market, and therefore generally observes a loan-to-value
ratio of no more than 75% of the lower of cost or the estimated value of the
completed property. In addition, we generally limit our
construction/speculative loans to one property per borrower at any given time,
and the largest number of construction/speculative loans we have originated to a
single borrower at any given time was for four properties. At
December 31, 2009, the largest outstanding concentration of credit to one
builder consisted of a mixed use development loan with an aggregate balance of
$6.6 million, which was performing in accordance with its repayment terms at
that date.
Construction/permanent
loans are made to either a homebuilder or a homeowner who, at the time of
construction, has a signed contract together with a commitment for permanent
financing from First Clover Leaf Bank or another lender for the finished
home. The construction phase of a loan generally lasts up to six
months, and the interest rate charged generally corresponds to the rate of the
committed permanent loan, with loan-to-value ratios of up to 80% (or up to 100%
if the borrower obtains private mortgage insurance) of the appraised estimated
value of the completed property or cost, whichever is less. Following
the initial six-month period, construction/permanent loans convert to permanent
loans, regardless of whether the construction phase has been
completed. At December 31, 2009 the largest single outstanding
construction loan of this type had an outstanding balance of approximately
$723,000. At December 31, 2009, the loan was performing in
accordance with its repayment terms.
Construction
lending generally involves a greater degree of risk than our other one- to
four-family mortgage lending. The repayment of the construction loan
is, to a great degree, dependent upon the successful and timely completion of
the home construction. Construction delays or the financial
impairment of the builder may further impair the borrower’s ability to repay the
loan.
Our
procedures for underwriting construction/speculative loans include an assessment
of the borrower’s credit history and the borrower’s ability to meet other
existing debt obligations, as well as payment of principal and interest on the
proposed loan. We use the same underwriting standards and procedures
for construction/permanent lending as we do for one- to four-family residential
real estate lending.
We also
originate land development loans to area homebuilders that are secured by
individual unimproved or improved residential building lots. Land
loans are generally offered with variable prime-based interest rates with terms
of up to two years. The general loan-to-value ratio is 75% of the
lower of cost or appraised value of the property.
9
Multi-Family Real
Estate Loans. Loans secured by multi-family real estate
totaled $20.9 million, or 5.0%, of our total loan portfolio at December 31,
2009. Multi-family real estate loans generally are secured by
apartment buildings and rental properties. All of our multi-family real estate
loans are secured by properties located within our lending area. At
December 31, 2009, our largest multi-family real estate loan had a principal
balance of $1.7 million and was secured by apartment
buildings. Multi-family real estate loans generally are offered
with interest rates that adjust after one, three or five years. The
interest rate adjustments are tied to either a Treasury Bill Index tied to the
adjustment period, or to a Cost of Funds Index.
We
consider a number of factors in originating multi-family real estate
loans. We evaluate the qualifications and financial condition of the
borrower (including credit history), profitability and expertise, as well as the
value and condition of the mortgaged property securing the loan. When
evaluating the qualifications of the borrower, we consider the financial
resources of the borrower, the borrower’s experience in owning or managing
similar property and the borrower’s payment history with us and other financial
institutions. In evaluating the property securing the loan, the
factors we consider include the net operating income of the mortgaged property
before debt service and depreciation, the debt service coverage ratio (the ratio
of net operating income to debt service), and the ratio of the loan amount to
the appraised value of the mortgaged property. Multi-family real
estate loans are originated in amounts up to 80% of the lower of the sale price
or the appraised value of the mortgaged property securing the
loan. All multi-family real estate loans over $250,000 are appraised
by outside independent appraisers approved by the board of
directors. All multi-family real estate loans below $250,000 must
either have an independent appraisal or an opinion of value, which, generally,
is the property’s tax bill. Borrowers are required to sign
multi-family notes in their individual (not corporate) capacity.
Loans
secured by multi-family real estate generally involve a greater degree of credit
risk than one- to four-family residential mortgage loans and carry larger loan
balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by
multi-family real estate typically depends upon the successful operation of the
real estate property securing the loan. If the cash flow from the
project is reduced, the borrower’s ability to repay the loan may be
impaired.
Consumer
Loans. Our consumer
loans consist primarily of automobile loans, home equity lines of credit and
overdraft loans, loans secured by deposits and securities, and unsecured
personal loans. As of December 31, 2009, consumer loans totaled $12.5
million, or 3.0%, of our total loan portfolio.
Automobile
loans are generally offered with maturities of up to 60 months for new
automobiles, while loans secured by used automobiles have maximum terms that
vary depending on the age of the automobile. We require all borrowers
to maintain collision insurance on automobiles securing loans in excess of
$1,000, with First Clover Leaf Bank listed as loss payee. In those
instances where the borrower fails to maintain adequate insurance coverage, we
are further protected against loss through a third-party policy insurance
coverage. Our automobile loan portfolio totaled $1.4 million, or
0.3%, of total loans at December 31, 2009.
At
December 31, 2009, home equity lines of credit totaled $9.9 million, or 2.4%, of
total loans. Home equity lines of credit are generally made for
owner-occupied homes, and are secured by first or second mortgages on
residential properties. We generally offer home equity lines of
credit with a maximum loan to appraised value ratio of 90% (including
senior liens on the subject property). We currently offer these loans
for terms of up to five years and with adjustable rates that are tied to
the prime lending rate. Clover Leaf Bank previously offered these
products with a maximum loan to appraised value of 85% with terms of up to 10
years, and we still retain some of these longer-term loans. To date,
we are seeing no stress in our home equity portfolio or signs of significant
default risks. We do review reports periodically of the higher
advanced credit lines and look at payment patterns and advance patterns in an
effort to detect potential problems.
Consumer
loans generally entail greater credit risk than residential mortgage loans,
particularly in the case of loans that are unsecured or are secured by assets
that tend to depreciate in value, such as automobiles. In these
cases, repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment for the outstanding loan and the remaining value
often does not warrant further substantial collection efforts against
the
10
borrower. Further,
consumer loan collections depend on the borrower’s continuing financial
stability, and therefore are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy.
Our
procedures for underwriting consumer loans include an assessment of the
borrower’s credit history and ability to meet other existing debt obligations,
as well as payments of principal and interest on the proposed
loans. The stability of the borrower’s monthly income may be
determined by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Although the
borrower’s creditworthiness is a primary consideration, the underwriting process
also includes a comparison of the value of the collateral security, if any, to
the proposed loan amount. We require independent appraisals for all
consumer loans in excess of $50,000 if secured by real estate. For
loans that do not exceed this amount, we require that an officer prepare a
memorandum of value detailing comparable values based upon tax bills for real
estate loans and National Automobile Dealers Association values for automobile
loans.
Commercial
Business Loans. We offer
commercial business loans to existing and new customers in our market
area. Some of these loans are secured in part by additional real
estate collateral. We make various types of secured and unsecured
commercial business loans for the purpose of financing equipment acquisition,
expansion, working capital and other general business purposes. The
terms of these loans are generally for less than five
years. Equipment loans usually involve a one-time disbursement of
funds, with repayment over the term of the loan, while operating lines of credit
involve multiple disbursements and revolving notes that can be renewed
annually. The loans are either negotiated on a fixed-rate basis or
carry variable interest rates indexed to the prime rate. At December
31, 2009, we had commercial business loans outstanding with an aggregate balance
of $63.1 million, or 15.0%, of the total loan portfolio. As of
December 31, 2009, our largest commercial business loan relationship consisted
of a $12.0 million line of credit with an outstanding balance of $73,000, and a
term loan of $3.5 million, which was secured primarily by accounts receivable
and corporate assets, and was performing in accordance with its
terms. An additional $2.4 million of this relationship was
participated to another financial institution.
We have
continued our emphasis on commercial business lending. These loans
tend to have higher rates of interest than residential mortgage loans, and are
more sensitive to changes in market interest rates because they often have
shorter terms to maturity, and therefore, the interest rates adjust more
frequently. In addition, commercial business lending gives us greater
access to commercial borrowers that may open transactional checking accounts
with First Clover Leaf Bank.
Commercial
credit decisions are based upon a complete credit review of the
borrower. A determination is made as to the borrower’s ability to
repay in accordance with the proposed terms as well as an overall assessment of
the credit risks involved. Personal guarantees of borrowers are
generally required. In evaluating a commercial business loan, we
consider debt service capabilities, actual and projected cash flows and the
borrower’s inherent industry risks. Credit agency reports of the
borrower’s credit history as well as bank checks and trade investigations
supplement the analysis of the borrower’s
creditworthiness. Collateral supporting a secured transaction is also
analyzed to determine its marketability and liquidity. Commercial
business loans generally bear higher interest rates than residential loans, but
they also may involve a higher risk of default since their repayment generally
depends on the successful operation of the borrower’s business.
Repayment
of our commercial business loans is often dependent on the cash flows of the
borrower, which may be unpredictable, and the collateral securing these loans
may fluctuate in value. Our commercial business loans are originated
primarily based on the identified cash flow of the borrower and secondarily on
the underlying collateral provided by the borrower. Most often, this
collateral consists of accounts receivable, inventory, equipment or real
estate. Credit support provided by the borrower for most of these
loans and the probability of repayment is based on the projected cash flow of
the company or liquidation of the pledged collateral and enforcement of a
personal guarantee, if any. As a result, in the case of loans secured
by accounts receivable, the availability of funds for the repayment of these
loans may be substantially dependent on the ability of the borrower to collect
amounts due from its customers. The collateral securing other loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.
11
Loan
Originations, Purchases, Sales and Servicing. Although we
originate both fixed-rate and adjustable-rate loans, our ability to generate
each type of loan depends upon borrower demand, market interest rates, borrower
preference for fixed- versus adjustable-rate loans, and the interest rates
offered on each type of loan by competing lenders in our market
area. This includes banks, savings institutions, credit unions,
mortgage banking companies, and life insurance companies. Loan
originations are derived from a number of sources, including existing or prior
customers and walk-in customers.
Loan
originations are adversely affected by rising interest rates, which typically
result in decreased loan demand. Accordingly, the volume of our loan
originations and the interest rates we can charge on loans vary from period to
period. One- to four-family residential mortgage loans are generally
underwritten to conform to Fannie Mae and Freddie Mac seller/servicer
guidelines, and are currently originated on a fixed interest rate basis
only. We generally sell most of our conforming, fixed-rate, one- to
four-family loans but retain the servicing rights on loans that we originate,
which means that we will continue to collect payments on the loans and supervise
foreclosure proceedings, if necessary. We retain a portion of the
interest paid by the borrower on the loans, generally 25 basis points, as
consideration for our services. We currently service $70.9 million of loans for
others. In 2009, we originated $29.5 million and sold $27.9 million
in single family residential mortgage loans to the Federal Home Loan Bank as a
conduit for Fannie Mae.
Loan Approval
Procedures and Authority. Our lending activities are subject
to written underwriting standards and loan origination procedures adopted by
management and the board of directors. For single family,
owner-occupied real estate loans, the President of First Clover Leaf Bank and
the Senior Vice President – Chief Lending Officer are authorized to approve
loans up to $500,000. For secured commercial real estate loans
and construction and land loans, these officers are authorized to approve loans
up to $750,000; for secured consumer loans, these officers may approve loans up
to $250,000; and for overdrafts and unsecured credits, these officers may
approve loans up to $100,000. They may approve renewals of commercial
business and commercial real estate loans by a total of their combined lending
limits where there has been no deterioration in either the payment pattern or
financial strength of the borrower. However, the entire board of
directors must approve all loans in excess of $4.0 million. In
addition, a list of all preauthorized loans is presented to the board of
directors’ loan committee on a monthly basis.
Loans to One
Borrower. At December 31, 2009, the maximum amount that First
Clover Leaf Bank could have loaned to any one borrower under the 15% limit of
risk-based capital was approximately $8.9 million. At that date, the
largest lending relationship with First Clover Leaf Bank totaled $17.9 million
and consisted of two loans secured primarily by accounts receivable and
corporate assets. First Clover Leaf Bank also has an agreement in place with
another financial institution to participate in this loan and had participated
$2.3 million to this financial institution at year end. First Clover
Leaf Bank’s remaining outstanding balance on this loan at year end was $4.3
million. Although this relationship was over the legal lending limit
of First Clover Leaf Bank as calculated at December 31, 2009, First Clover Leaf
Bank’s legal lending limit declined in October 2008, primarily due to a $28.0
million dividend paid to the holding company from First Clover Leaf Bank, and at
the time this loan was originated the loan amount complied with the
regulation. Accordingly, First Clover Leaf Bank is considered to be
in compliance with its legal lending limit at December 31, 2009 with respect to
this relationship.
Appraisal
Policies. We obtain appraisals on property for all new loan
originations secured by real estate. Appraisals are completed prior
to the closing of the new loan. We will also request a new appraisal
on a renewing loan if the credit appears to be distressed and we do not feel
that we can properly assess the value from our own resources. The
bank also subscribes to a service that provides access to current property
listings and sales on single family residences which allows access to
comparative sales prices. We will obtain a new appraisal on a
commercial property when a borrower is experiencing cash flow difficulties which
appear to be more than temporarily impaired and we do not feel that we have the
resources necessary to properly assess the situation. In addition, if
we have determined that it is necessary to foreclose on a property, we will
obtain a new appraisal.
Asset
Quality
Loan
Delinquencies and Collection Procedures. When a borrower fails
to make required payments on a loan, we take a number of steps to induce the
borrower to correct the delinquency and restore the loan to a
current
12
status. We
will send a borrower a reminder notice 15 days after an account becomes
delinquent, and our employees are authorized to use their discretion whether
direct telephone contact is required at that time. If the borrower
does not remit the entire payment due by the end of the month, we try to make
direct contact with the borrower to arrange a payment plan. If a
satisfactory payment plan is not established within 50 days of a delinquency, we
will send a demand letter to the borrower. If a satisfactory payment
plan has not been arranged within 60 days following a delinquency, we may
instruct our attorneys to institute foreclosure proceedings depending on the
loan-to-value ratio or our relationship with the borrower. Foreclosed
property is held as other real estate owned.
Our
policies require that management continuously monitor the status of the loan
portfolio and report to the board of directors on a monthly
basis. These reports include information on delinquent loans and
foreclosed real estate and our actions and plans to cure the delinquent status
of the loans and to dispose of any real estate acquired through
foreclosure.
The
Company has experienced an increase in our non-performing and impaired loans, as
well as our non-performing assets due to the current economic
slowdown. Detailed information concerning the Company’s
non-performing and impaired loans is described in the paragraphs that
follow. Overall, the loans that would be classified as high risk
loans by the Company are very limited in number and in value. The
Company does not originate subprime loans and holds a very small number and
dollar value of ARM products. The Company does hold some junior lien
mortgages and high loan-to-value ratio mortgages; however, they total an
immaterial portion of our loan portfolio. The Company is reviewing
these loans regularly and has not seen any increase in the delinquency trends
for these products. Our allowance for loan loss methodology has
remained consistent. As commercial loans mature and requests for renewals are
processed, either a new appraisal is obtained or the Company performs an
internal valuation of the collateral based on comparable
sales. Additionally, the original appraisal is discounted if the
Company believes it is warranted.
Non-Accrual
Loans. All loans
are reviewed on a regular basis and are placed on non-accrual status when, in
the opinion of management, there is reasonable probability of loss of principal
or the collection of additional interest is deemed insufficient to warrant
further accrual. Generally, we place all loans 90 days or more past
due on non-accrual status. However, exceptions may occur when a loan
is in process of renewal, but it has not yet been completed. In
addition, we may place any loan on non-accrual status if any part of it is
classified as loss or if any part has been charged-off. When a loan
is placed on non-accrual status, total interest accrued and unpaid to date is
reversed. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan. Loans are charged-off no
later than 120 days following their delinquency, unless the loans are
well-collateralized or in the process of collection.
As of
December 31, 2009, our total non-accrual loans amounted to $11.7 million
compared to $5.6 million at December 31, 2008. Details of the largest
non-accrual relationships are included below.
Non-Performing
and Impaired Loans and Non-Performing Assets. As of December
31, 2009, our total non-performing and impaired loans and non-performing assets
were $30.2 compared to $8.2 million at December 31, 2008.
At
December 31, 2009, First Clover Leaf Bank had six relationships classified as
non-accrual with balances in excess of $500,000. The largest
non-accrual relationship is a $3.9 million development loan to a subdivision
developer with excess inventory that is selling slowly due to the economic
slowdown. The loan is secured by the residential property, and the
appraisal for the property has been reviewed and updated to reflect current
market conditions and sales values. Several options are being
discussed with the borrower for possible restructuring of this
note. The note is currently being re-evaluated on a quarterly basis
under a discounted cash flow analysis. The second non-accrual
relationship is a $2.0 million group of loans to a real estate investor, who is
experiencing high vacancy rates and property repairs resulting in decreased cash
flows due to the economic slowdown. The borrower is currently working
with a management company to decrease the vacancy rates, and property repairs
are continuing to be made. The third relationship is a $1.3 million credit to a
real estate investor. This relationship relates to several credits
which are all related by common ownership. Most of the credits are
single family residential properties, but some are related to commercial
property. We re-assessed the values of these properties in the fourth
quarter of 2009, and a charge-off was taken at December 31, 2009 for the
collateral shortfall. The fourth relationship is a $755,000 loan to a real
estate developer. The primary collateral consists of 35 vacant lots,
and the collateral is
13
sufficient
to cover the loan balance. The lots are continuing to sell in a
manner that is allowing the borrower to continue to make principal
payments. The fifth relationship is a $692,000 loan on a commercial
property. The property is currently listed for sale. If the property
does not sell in a timely manner, we will proceed with foreclosure
proceedings. The collateral is believed to be sufficient to cover the
loan balance. The sixth relationship is a group of loans totaling
$586,000 to a real estate developer. The collateral on these loans
consists of two residential properties, one commercial property, and two
residential lots. We received deeds in lieu of foreclosure early in
2010 for each of these properties. One of the properties is currently
under contract and no loss is expected on the relationship. The
remaining balance of non-accrual loans is made up of small credits, each less
than $500,000. Appraisals have been obtained for all of the
above-mentioned credits and shortfalls are being reserved through provisions for
loan losses.
At
December 31, 2009, our total other impaired loans amounted to $14.8 million
compared to $1.2 million at December 31, 2008. There are five
impaired loans with balances in excess of $1.0 million at December 31,
2009. The largest loan is a $6.7 million credit to a builder with
excess inventory. This loan is secured by residential investment
property for which updated appraisals have been obtained. Currently
the collateral on this loan is sufficient to cover the majority of the
outstanding balance, and sufficient reserves have been set aside for the
remaining outstanding balance. The loan was restructured to allow for
a period of interest only payments. The borrower is in compliance
with the modified terms. The second loan is a $1.8 million credit for a mobile
home park. This credit is being analyzed for a possible restructure,
and a new appraisal will likely be ordered in the second quarter of
2010. The third loan is a $1.7 million credit to a real estate
investor and is secured by a commercial office building. The
collateral on this loan is sufficient to cover the outstanding
credit. The fourth loan is a $1.6 million credit to a residential
real estate developer who is struggling with the economic
downturn. The loan is currently secured by single family
residences. The Company is currently working with the developer on
possible restructuring alternatives. The fifth credit is a $1.3
million credit to a real estate broker. The credit is primarily
secured by commercial real estate. The borrower in this case is
struggling with decreased cash flows due to the economic
downturn. The remaining balance of other impaired loans is made up of
credits with outstanding balances less than $1.0 million. Management
believes that we have properly provided for these loans in the allowance for
loan losses.
At
December 31, 2009, First Clover Leaf Bank had three properties classified as
Real Estate Owned. The collateral on these properties consisted of a
single family residence, a commercial building, and residential
lots. All of these properties were transferred into Real Estate Owned
at the property’s fair value, less cost of disposal, at the date of
foreclosure.
14
The table
below sets forth the amount and categories of our non-performing and impaired
loans and non-performing assets at the dates indicated. At each date presented,
we had an insignificant amount of troubled debt restructurings, (loans for which
a portion of interest or principal has been forgiven and loans modified at
interest rates materially less than current market rates) which are considered
to be impaired loans.
At
December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Non-accrual
loans:
|
||||||||||||||||||||
One-
to four-family
|
$ | 2,260 | $ | 1,598 | $ | 1,269 | $ | 579 | $ | ― | ||||||||||
Multi-family
|
2,324 | 556 | 412 | 395 | ― | |||||||||||||||
Commercial
real estate
|
1,346 | 3,463 | 977 | 396 | ― | |||||||||||||||
Construction
and land
|
5,410 | ― | ― | ― | ― | |||||||||||||||
Commercial
business
|
293 | ― | ― | ― | ― | |||||||||||||||
Consumer
|
100 | 1 | 11 | 1 | 4 | |||||||||||||||
Total
non-accrual loans
|
11,733 | 5,618 | 2,669 | 1,371 | 4 | |||||||||||||||
Accruing
loans delinquent 90 days or more:
|
||||||||||||||||||||
One-
to four-family
|
107 | 764 | 285 | 16 | ― | |||||||||||||||
Construction
and land
|
1,600 | ― | ― | ― | ― | |||||||||||||||
Commercial
business
|
873 | ― | ― | ― | ― | |||||||||||||||
Consumer
|
— | — | — | ― | 11 | |||||||||||||||
Total
accruing loans delinquent 90 days or more
|
2,580 | 764 | 285 | 16 | 11 | |||||||||||||||
Total
non-performing loans
|
14,313 | 6,382 | 2,954 | 1,387 | 15 | |||||||||||||||
Other
impaired loans:
|
||||||||||||||||||||
Multi-family
|
6,122 | — | — | — | ― | |||||||||||||||
Commercial
real estate
|
4,932 | 1,037 | 1,198 | 918 | ― | |||||||||||||||
Construction
and land
|
2,407 | — | — | 1,467 | ― | |||||||||||||||
Commercial
business
|
1,357 | 114 | 133 | 149 | ― | |||||||||||||||
Total
other impaired loans
|
14,818 | 1,151 | 1,331 | 2,534 | ― | |||||||||||||||
Total
non-performing and impaired loans
|
29,131 | 7,533 | 4,285 | 3,921 | 15 | |||||||||||||||
Real
estate owned:
|
||||||||||||||||||||
One-
to four-family
|
200 | 408 | ― | ― | ― | |||||||||||||||
Commercial
real estate
|
230 | 225 | ― | ― | ― | |||||||||||||||
Construction
and land
|
655 | — | — | ― | ― | |||||||||||||||
Total
real estate owned
|
1,085 | 633 | — | ― | ― | |||||||||||||||
Total
non-performing and impaired assets
|
$ | 30,216 | $ | 8,166 | $ | 4,285 | $ | 3,921 | $ | 15 | ||||||||||
Allowance
for loan losses attributable to non-performing and impaired
loans
|
$ | 2,126 | $ | 553 | $ | 307 | $ | 396 | $ | 4 | ||||||||||
Ratios:
|
||||||||||||||||||||
Non-performing
and impaired loans to total loans
|
7.07 | % | 1.75 | % | 1.50 | % | 1.60 | % | 0.01 | % | ||||||||||
Non-performing
and impaired assets to total assets
|
5.16 | % | 1.25 | % | 1.04 | % | 0.96 | % | 0.01 | % |
For the
year ended December 31, 2009, $1.8 million of gross interest income would have
been recorded had our non-accruing loans been current in accordance with their
original terms. We recorded $1.0 million of income on such loans for the year
ended December 31, 2009.
15
At
December 31, 2009, we had no loans which were not currently classified as
non-accrual, 90 days past due or impaired, but where known information about
possible credit problems of the borrower caused management to have serious
concerns as to the ability of the borrower to comply with present loan repayment
terms and would result in disclosure as non-accrual, 90 days past due or
impaired.
Real Estate
Owned. Real
estate owned consists of property acquired through formal foreclosure or by deed
in lieu of foreclosure and is recorded at the lower of recorded investment or
fair value. Write-downs from recorded investment to fair value which
are required at the time of foreclosure are charged to the allowance for loan
losses. After transfer, the property is carried at the lower of
recorded investment or fair value, less estimated selling
expenses. Adjustments to the carrying value of the properties that
result from subsequent declines in value are charged to operations in the period
in which the declines occur. At December 31, 2009, we held three
properties with a total value of $1.1 million.
Classification of
Assets. Our policies, consistent with regulatory guidelines,
require that we classify loans and other assets, such as securities, that are
considered to be of lesser quality, as substandard, doubtful, or loss
assets. An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those
characterized by the distinct possibility that First Clover Leaf Bank will
sustain some loss if the deficiencies are not corrected. Assets
classified as doubtful have all of the weaknesses inherent in those classified
substandard with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. Assets
classified as loss are those considered uncollectable and of such little value
that their continuance as assets is not warranted. Assets that do not
expose us to risk sufficient to warrant classification in one of the
aforementioned categories, but which possess some weaknesses, are required to be
designated as special mention by management.
General
allowances represent loss allowances that have been established to recognize the
probable risk associated with lending activities, but which have not been
allocated to particular problem assets. When we classify problem
assets as loss, we are required either to establish a specific allowance for
losses equal to 100% of the amount of the assets so classified, or to charge-off
the amount of the assets. Our determination as to the classification
of assets and the amount of valuation allowances is subject to review by
regulatory agencies, which can order the establishment of additional loss
allowances. All loans classified as doubtful are also classified as
impaired. As a general rule, loans classified as substandard are also
classified as impaired. The loans that are an exception to this
classification are generally mortgage and consumer loans, and they represent a
small amount and percentage of the substandard category. Management
regularly reviews our asset portfolio to determine whether any assets require
classification in accordance with applicable regulatory guidelines and
accounting principles generally accepted in the United States of
America.
On the
basis of management’s review of our assets, at December 31, 2009, we had
classified $26.9 million of our assets as substandard and $1.1 million as
doubtful.
16
The
following table sets forth certain information with respect to our loan
portfolio delinquencies at the dates indicated.
Loans
Delinquent For
|
||||||||||||||||||||||||
60-89
Days
|
90
Days and Over
|
Total
|
||||||||||||||||||||||
Number
|
Amount
|
Number
|
Amount
|
Number
|
Amount
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
At December 31, 2009
|
||||||||||||||||||||||||
One-
to four-family residential
|
3 | $ | 178 | 5 | $ | 734 | 8 | $ | 912 | |||||||||||||||
Multi-family
|
― | ― | 3 | 585 | 3 | 585 | ||||||||||||||||||
Commercial
real estate
|
1 | 56 | 17 | 1,890 | 18 | 1,946 | ||||||||||||||||||
Construction
and land
|
― | ― | 3 | 1,462 | 3 | 1,462 | ||||||||||||||||||
Commercial
business
|
1 | 43 | 5 | 1,155 | 6 | 1,198 | ||||||||||||||||||
Consumer
|
1 | 12 | 1 | 100 | 2 | 112 | ||||||||||||||||||
Total
|
6 | $ | 289 | 34 | $ | 5,926 | 40 | $ | 6,215 | |||||||||||||||
At December 31, 2008
|
||||||||||||||||||||||||
One-
to four-family residential
|
8 | $ | 683 | 12 | $ | 1,267 | 20 | $ | 1,950 | |||||||||||||||
Multi-family
|
― | ― | 3 | 555 | 3 | 555 | ||||||||||||||||||
Commercial
real estate
|
4 | 487 | 29 | 1,528 | 33 | 2,015 | ||||||||||||||||||
Construction
and land
|
― | ― | 4 | 2,535 | 4 | 2,535 | ||||||||||||||||||
Commercial
business
|
3 | 225 | 1 | 495 | 4 | 720 | ||||||||||||||||||
Consumer
|
4 | 67 | 1 | 1 | 5 | 68 | ||||||||||||||||||
Total
(1)
|
19 | $ | 1,462 | 50 | $ | 6,381 | 69 | $ | 7,843 | |||||||||||||||
At December 31, 2007
|
||||||||||||||||||||||||
One-
to four-family residential
|
4 | $ | 249 | 14 | $ | 1,554 | 18 | $ | 1,803 | |||||||||||||||
Multi-family
|
― | ― | 1 | 412 | 1 | 412 | ||||||||||||||||||
Commercial
real estate
|
1 | 304 | 5 | 977 | 6 | 1,281 | ||||||||||||||||||
Construction
and land
|
1 | 985 | ― | ― | 1 | 985 | ||||||||||||||||||
Commercial
business
|
2 | 1,280 | ― | ― | 2 | 1,280 | ||||||||||||||||||
Consumer
|
— | — | 2 | 11 | 2 | 11 | ||||||||||||||||||
Total
(1)
|
8 | $ | 2,818 | 22 | $ | 2,954 | 30 | $ | 5,772 | |||||||||||||||
At December 31, 2006
|
||||||||||||||||||||||||
One-
to four-family residential
|
2 | $ | 94 | 4 | $ | 102 | 6 | $ | 196 | |||||||||||||||
Multi-family
|
― | ― | 1 | 395 | 1 | 395 | ||||||||||||||||||
Commercial
business
|
2 | 147 | 1 | 18 | 3 | 165 | ||||||||||||||||||
Consumer
|
2 | 28 | ― | ― | 2 | 28 | ||||||||||||||||||
Total
|
6 | 269 | 6 | 515 | 12 | 784 | ||||||||||||||||||
At December 31, 2005
|
||||||||||||||||||||||||
One-
to four-family residential
|
1 | $ | 52 | ― | $ | ― | 1 | $ | 52 | |||||||||||||||
Multi-family
|
1 | 2 | ― | ― | 1 | 2 | ||||||||||||||||||
Consumer
|
― | ― | 4 | 15 | 4 | 15 | ||||||||||||||||||
Total
|
2 | $ | 54 | 4 | $ | 15 | 6 | $ | 69 |
____________________
(1) The category of 90 Days
and Over includes all
non-accrual loans.
17
Allowance for
Loan Losses. The following table sets forth activity in our
allowance for loan losses for the years indicated.
At
or For the Years Ended
December
31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Balance
at beginning of year
|
$ | 3,895 | $ | 1,898 | $ | 1,710 | $ | 428 | $ | 428 | ||||||||||
Charge-offs:
|
||||||||||||||||||||
One-to-four
family residential
|
(244 | ) | ― | ― | ― | ― | ||||||||||||||
Commercial
real estate
|
(832 | ) | (56 | ) | ― | ― | ― | |||||||||||||
Construction
and land
|
(1,644 | ) | (124 | ) | (142 | ) | ― | ― | ||||||||||||
Consumer
|
― | (91 | ) | (7 | ) | (1 | ) | ― | ||||||||||||
Commercial
Business
|
(414 | ) | ― | (15 | ) | ― | ― | |||||||||||||
Total
charge-offs
|
(3,134 | ) | (271 | ) | (164 | ) | (1 | ) | ― | |||||||||||
Recoveries:
|
||||||||||||||||||||
Consumer
|
― | 16 | 5 | 5 | ― | |||||||||||||||
Commercial
Business
|
2 | ― | ― | ― | ― | |||||||||||||||
Total
recoveries
|
2 | 16 | 5 | 5 | ― | |||||||||||||||
Net
(charge-offs) recoveries
|
(3,132 | ) | (255 | ) | (159 | ) | 4 | ― | ||||||||||||
Allowance
acquired
|
— | 1,476 | — | 911 | ― | |||||||||||||||
Provision
for loan losses
|
5,554 | 776 | 347 | 367 | ― | |||||||||||||||
Balance
at end of year
|
$ | 6,317 | $ | 3,895 | $ | 1,898 | $ | 1,710 | $ | 428 | ||||||||||
Ratios:
|
||||||||||||||||||||
Net
charge-offs (recoveries) to average loans outstanding
|
0.74 | % | 0.07 | % | 0.06 | % | 0.00 | % | ― | |||||||||||
Allowance
for loan losses to non-performing and impaired loans
|
21.68 | % | 51.71 | % | 44.27 | % | 43.61 | % | 2,766.14 | % | ||||||||||
Allowance
for loan losses to total loans
|
1.53 | % | 0.90 | % | 0.67 | % | 0.70 | % | 0.37 | % |
18
The
allowance for loan losses is a valuation account that reflects our evaluation of
the credit losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to
income. We charge losses on loans against the allowance for loan
losses when we believe the collection of loan principal is
unlikely.
Our
evaluation of risk in maintaining the allowance for loan losses includes the
review of all loans on which the collectibility of principal may not be
reasonably assured. We consider the following factors as part of this
evaluation: our historical loan loss experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of any underlying collateral, peer group information and
prevailing economic conditions. Management evaluates the total
balance of the allowance for loan losses based on several factors that are not
loan specific but are reflective of the losses inherent in the loan portfolio,
including management’s periodic review of loan collectibility in light of
historical experience, the nature and volume of the loan portfolio, prevailing
economic conditions such as housing trends, inflation rates and unemployment
rates, geographic concentrations of loans within First Clover Leaf Bank’s
immediate market area, and both peer financial institution historic loan loss
experience and allowance for loan loss levels.
There may
be other factors that may warrant our consideration in maintaining an allowance
at a level sufficient to provide for probable losses. This evaluation
is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available or as future events
change. During 2009, management increased the general allocation
percentages used in the calculation of our allowance for loan
losses. Management evaluated several factors in determining the need
to increase these percentages. The loss history that was previously
used in the calculation was comprised of the previous nine years of historical
losses. Management revised the percentage allocation to be comprised
of the previous three years of historical losses as this more accurately
reflects the risk of our current portfolio. Management also reviewed
the current economic conditions and determined that the general allocation
percentages should be increased to take into account the increased unemployment
rate, the declining market value of collateral, and the increase in our past due
and non-accrual loan ratios. Although we believe that we have
established and maintained the allowance for loan losses at adequate levels,
future additions may be necessary if economic and other conditions in the future
differ substantially from the current operating environment.
In
addition, the Office of Thrift Supervision, as an integral part of its
examination process, periodically reviews our loan portfolio and the related
allowance for loan losses. The Office of Thrift Supervision may
require us to increase the allowance for loan losses based on its judgments of
information available to it at the time of its examination, thereby adversely
affecting our results of operations.
19
Allocation of Allowance for Loan
Losses. The following tables set forth the allowance for loan
losses allocated by loan category, the total loan balances by category, and the
percent of loans in each category to total loans at the dates
indicated. The allowance for loan losses allocated to each category
is not necessarily indicative of future losses in any particular category and
does not restrict the use of the allowance to absorb losses in other
categories.
At
December 31,
|
||||||||||||||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||||||||||||||
Allowance
for Loan Losses
|
Loan
Balances by Category
|
Percent
of Loans in Each Category to Total Loans
|
Allowance
for Loan Losses
|
Loan
Balances by Category
|
Percent
of Loans in Each Category to Total Loans
|
Allowance
for Loan Losses
|
Loan
Balances by Category
|
Percent
of Loans in Each Category to Total Loans
|
||||||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||
Real
Estate Loans:
|
||||||||||||||||||||||||||||||||||||
One-
to four-family
|
$ | 1,517 | $ | 98,080 | 23.4 | % | $ | 758 | $ | 110,925 | 25.3 | % | $ | 532 | $ | 112,764 | 39.2 | % | ||||||||||||||||||
Multi-family
|
745 | 20,947 | 5.0 | 479 | 18,150 | 4.2 | 84 | 13,931 | 4.8 | |||||||||||||||||||||||||||
Commercial
|
2,402 | 179,923 | 42.8 | 1,453 | 168,432 | 38.4 | 832 | 97,810 | 34.0 | |||||||||||||||||||||||||||
Construction
and land
|
883 | 45,448 | 10.8 | 529 | 52,338 | 11.9 | 290 | 20,776 | 7.2 | |||||||||||||||||||||||||||
Commercial
business
|
760 | 63,135 | 15.0 | 624 | 78,160 | 17.8 | 114 | 34,783 | 12.1 | |||||||||||||||||||||||||||
Consumer
|
10 | 12,477 | 3.0 | 52 | 10,270 | 2.4 | 46 | 7,770 | 2.7 | |||||||||||||||||||||||||||
Total
|
$ | 6,317 | $ | 420,010 | 100.0 | % | $ | 3,895 | $ | 438,275 | 100.0 | % | $ | 1,898 | $ | 287,834 | 100.0 | % |
At
December 31,
|
||||||||||||||||||||||||
2006
|
2005
|
|||||||||||||||||||||||
Allowance
for Loan Losses
|
Loan
Balances by Category
|
Percent
of Loans in Each Category to Total Loans
|
Allowance
for Loan Losses
|
Loan
Balances by Category
|
Percent
of Loans in Each Category to Total Loans
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
Real
Estate Loans:
|
||||||||||||||||||||||||
One-
to four-family
|
$ | 400 | $ | 120,355 | 48.5 | % | $ | 353 | $ | 97,594 | 83.0 | % | ||||||||||||
Multi-family
|
65 | 8,895 | 3.6 | 19 | 5,390 | 4.6 | ||||||||||||||||||
Commercial
|
753 | 68,577 | 27.7 | 40 | 11,074 | 9.4 | ||||||||||||||||||
Construction
and land
|
324 | 17,181 | 6.9 | 8 | 2,317 | 1.9 | ||||||||||||||||||
Commercial
business
|
145 | 25,907 | 10.4 | ― | ― | ― | ||||||||||||||||||
Consumer
|
23 | 7,125 | 2.9 | 8 | 1,257 | 1.1 | ||||||||||||||||||
Total
|
$ | 1,710 | $ | 248,040 | 100.0 | % | $ | 428 | $ | 117,632 | 100.0 | % |
20
Investment
Activities
We are
permitted under federal law to invest in various types of liquid assets,
including U.S. Government obligations, securities of various federal agencies
and of state and municipal governments, deposits at the Federal Home Loan Bank
of Chicago, certificates of deposit of federally insured institutions, certain
bankers’ acceptances and federal funds. Within certain regulatory
limits, we may also invest a portion of our assets in commercial paper and
corporate debt securities. First Clover Leaf Bank is also required to
invest in Federal Home Loan Bank stock.
The
Financial Accounting Standards Board’s guidance regarding the accounting for
certain investments in debt and equity securities requires that securities be
categorized as “held to maturity,” “trading securities” or “available for sale,”
based on management’s intent as to the ultimate disposition of each
security. We have classified all of our securities as available for
sale at December 31, 2009.
The
guidance allows debt securities to be classified as “held to maturity” and
reported in financial statements at amortized cost only if the reporting entity
has the positive intent and ability to hold those securities to
maturity. Securities that might be sold in response to changes in
market interest rates, changes in the security’s prepayment risk, increases in
loan demand, or other similar factors cannot be classified as “held to
maturity.”
Debt and
equity securities held for current resale are classified as “trading
securities.” These securities are reported at fair value, and
unrealized gains and losses on the securities are included in
earnings. We do not currently use or maintain a trading
account. Debt and equity securities not classified as either “held to
maturity” or “trading securities” are classified as “available for
sale.” These securities are reported at fair value, and unrealized
gains and losses on the securities are excluded from earnings and reported, net
of deferred taxes, as a separate component of equity.
All of
our securities carry market risk insofar as increases in market interest rates
may cause a decrease in their market value. Many also carry
prepayment risk insofar as they may be called prior to maturity in times of low
market interest rates, so that we may have to reinvest the funds at a lower
interest rate. Investments in securities are made based on certain
considerations, which include the interest rate, tax considerations, yield,
settlement date and maturity of the security, our liquidity position, and
anticipated cash needs and sources. The effect that the proposed
security would have on our credit and interest rate risk and risk-based capital
is also considered. We purchase securities to provide necessary
liquidity for day-to-day operations, and when investable funds exceed loan
demand.
Generally,
our investment policy, as established by the board of directors, is to invest
funds among various categories of investments and maturities based upon our
liquidity needs, asset/liability management policies, investment quality,
marketability and performance objectives.
Our
investment policy does not permit engaging directly in hedging activities or
purchasing high-risk mortgage derivative products.
Our debt
securities are mainly composed of securities issued by the U.S. Government,
government agencies and government-sponsored enterprises (primarily the Federal
Home Loan Bank, Fannie Mae and Freddie Mac) and investment grade corporate debt
securities, although from time to time we make other investments as permitted by
applicable laws and regulations.
First
Clover Leaf Financial Corp. utilizes a third party vendor for investment
portfolio accounting. The vendor provides a monthly report indicating
by individual bond the gain or loss position of the security, as well as any
downgrades that have occurred. When a bond is downgraded, we contact
a broker to gain a better understanding of the reason for the downgrade and any
known or anticipated defaults by the issuer. We consider the grade of
the bond and the payment history when determining if a bond should be classified
as other than temporarily impaired and if a write down of the security is
necessary. The board of directors is informed monthly of any bond
downgrades and the overall gain or loss position of the investment
portfolio. As of December 31, 2009, we had no securities considered
to be other-than-temporarily impaired.
21
Available for Sale
Portfolio. The following table sets forth the composition of
our available for sale portfolio at the dates indicated. For further
information see Notes 1 and 3 of the Notes to Consolidated Financial
Statements.
At
December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
|||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||
Investment
Securities:
|
||||||||||||||||||||||||
U.S.
government agency obligations
|
$ | 47,783 | $ | 48,514 | $ | 58,414 | $ | 59,346 | $ | 40,466 | $ | 40,883 | ||||||||||||
Corporate
bonds
|
2,596 | 2,546 | 3,094 | 2,829 | 3,594 | 3,491 | ||||||||||||||||||
State
and municipal securities
|
14,468 | 15,379 | 12,238 | 12,451 | 3,132 | 3,143 | ||||||||||||||||||
Other
securities
|
4 | 4 | 75 | 75 | ― | ― | ||||||||||||||||||
Mortgage-backed
securities
|
18,816 | 19,964 | 27,849 | 28,866 | 6,572 | 6,633 | ||||||||||||||||||
Total
investment securities available for sale
|
$ | 83,667 | $ | 86,407 | $ | 101,670 | $ | 103,567 | $ | 53,764 | $ | 54,150 |
At
December 31, 2009, we held seven available-for-sale securities that had been in
a loss position for less than twelve months, and four available-for-sale
securities that had been in a loss position for twelve months or
more. Included in the seven securities in the less-than-twelve month
position are (a) six U.S. government agency obligations, three of which have
been in a loss position for one month, two have been in a loss position for two
months, and one has been in a loss position for four months (b) one
Mortgage-backed security that has been in a loss position for six
months. Included in the four securities in the twelve-months-or-more
position are two U.S. government agency obligations and two corporate
bonds.
As of
December 31, 2009, management believes that the estimated fair values of the
securities noted above are primarily dependent on movements in market interest
rates. These investment securities are comprised of securities that
are rated investment grade by at least one bond credit rating
service. Management believes that these fair values will recover as
the underlying portfolios mature. We do not intend to sell or expect
that it is more likely than not that we will be required to sell these
investment securities prior to the anticipated recovery in fair
value. Accordingly, management does not believe any individual
unrealized loss as of December 31, 2009, represents an other-than-temporary
impairment.
22
Portfolio Maturities and
Yields. The composition and maturities of the investment
securities portfolio and the mortgage-backed securities portfolio at December
31, 2009 are summarized in the following table. Maturities are based
on the final contractual payment dates, and do not reflect the impact of
prepayments or early redemptions that may occur. State and municipal
securities yields have not been adjusted to a tax-equivalent basis.
One
Year or Less
|
More
than One Year through Five Years
|
More
than Five Years through Ten Years
|
More
than Ten Years
|
Total
Securities
|
||||||||||||||||||||||||||||||||||||||||
Amortized Cost
|
Weighted
Average Yield
|
Amortized
Cost
|
Weighted
Average Yield
|
Amortized
Cost
|
Weighted
Average Yield
|
Amortized
Cost
|
Weighted
Average Yield
|
Amortized
Cost
|
Fair
Value
|
Weighted
Average Yield
|
||||||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||||||||||
Available
for Sale:
|
||||||||||||||||||||||||||||||||||||||||||||
Investment
Securities
|
||||||||||||||||||||||||||||||||||||||||||||
U.S.
Government agency obligations
|
$ | 3,468 | 4.40 | % | $ | 30,556 | 3.05 | % | $ | 13,759 | 3.72 | % | $ | ― | ― | % | $ | 47,783 | $ | 48,514 | 3.34 | % | ||||||||||||||||||||||
Corporate
bonds
|
500 | 4.20 | 1,249 | 4.68 | ― | ― | 847 | 5.06 | 2,596 | 2,546 | 4.71 | |||||||||||||||||||||||||||||||||
State
and municipal securities
|
300 | 4.60 | 6,191 | 4.29 | 4,784 | 4.18 | 3,193 | 4.79 | 14,468 | 15,379 | 4.37 | |||||||||||||||||||||||||||||||||
Other
securities
|
4 | ― | ― | ― | ― | ― | ― | ― | 4 | 4 | ― | |||||||||||||||||||||||||||||||||
Mortgage-backed
securities
|
1,997 | 4.14 | 1,637 | 4.55 | 445 | 5.79 | 14,737 | 5.05 | 18,816 | 19,964 | 4.93 | |||||||||||||||||||||||||||||||||
Total
debt securities available for sale
|
$ | 6,269 | 4.31 | % | $ | 39,633 | 3.36 | % | $ | 18,988 | 3.88 | % | $ | 18,777 | 5.01 | % | $ | 83,667 | $ | 86,407 | 3.92 | % |
23
Sources
of Funds
General.
Deposits are our primary source of funds for lending and other investment
purposes. In addition to deposits, we derive funds primarily from principal and
interest payments on loans. Loan repayments are a relatively stable source of
funds, while deposit inflows and outflows are significantly influenced by market
interest rates. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources, and
may be used on a longer-term basis for general business purposes.
Deposits.
Residents of our primary market area are our main source of deposits. Deposit
account terms vary, with the principal differences being the minimum balance
required, the time periods the funds must remain on deposit, and the interest
rate. From time to time, we supplement our funding with brokered
deposits. At December 31, 2009 we had $20.6 million in brokered
deposits. Currently, we are not dependent on brokered deposits,
and we have several sources for obtaining wholesale and brokered deposits if
needed in the future. Our deposit products include demand and NOW,
money market, savings, and term certificate accounts. Interest rates
paid, maturity terms, service fees and withdrawal penalties are established by
First Clover Leaf Bank on a periodic basis. Management determines the rates and
terms based on competitive market rates, our needs for funds or liquidity,
growth goals and federal and state regulations.
Noninterest-Bearing
Deposits. The balances of our noninterest-bearing deposits at
December 31, 2009 and 2008 were $49.5 million and $25.0 million,
respectively.
24
Interest-Bearing
Deposit
Accounts by Type. The following table sets forth the average
balances of our interest-bearing deposits in the various types of deposit
programs for the years indicated.
Years
Ended December 31,
|
||||||||||||||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||||||||||||||
Average
Balance
|
Percent
|
Weighted
Average Rate
|
Average
Balance
|
Percent
|
Weighted
Average Rate
|
Average
Balance
|
Percent
|
Weighted
Average Rate
|
||||||||||||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||||||||||||||
Interest-bearing
transaction
|
$ | 180,606 | 42.8 | % | 1.60 | % | $ | 107,054 | 34.9 | % | 2.53 | % | $ | 57,651 | 24.1 | % | 3.69 | % | ||||||||||||||||||
Savings
deposits
|
28,267 | 6.7 | 0.77 | 18,203 | 5.9 | 1.65 | 20,704 | 8.6 | 2.60 | |||||||||||||||||||||||||||
208,873 | 49.5 | 125,257 | 40.8 | 78,355 | 32.7 | |||||||||||||||||||||||||||||||
Certificates
of deposit
|
212,782 | 50.5 | 3.36 | 181,851 | 59.2 | 4.29 | 161,104 | 67.3 | 4.85 | |||||||||||||||||||||||||||
Total
interest-bearing deposits
|
$ | 421,655 | 100.0 | % | 2.43 | % | $ | 307,108 | 100.0 | % | 3.52 | % | $ | 239,459 | 100.0 | % | 4.37 | % |
25
Time Deposit
Balances and Maturities. The following table sets forth
certificates of deposit by time remaining until maturity as of December 31,
2009.
Maturity
|
||||||||||||||||||||
3
Months or Less
|
Over
3 to 6 Months
|
Over
6 to 12 Months
|
Over
12 Months
|
Total
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Certificates
of deposit less than $100,000
|
$ | 31,331 | $ | 19,715 | $ | 23,912 | $ | 59,723 | $ | 134,681 | ||||||||||
Certificates
of deposit of $100,000 or more (1)
|
8,910 | 9,838 | 25,454 | 20,144 | 64,346 | |||||||||||||||
Total
of certificates of deposit
|
$ | 40,241 | $ | 29,553 | $ | 49,366 | $ | 79,867 | $ | 199,027 |
_______________________
(1)
|
The
weighted average interest rates for these accounts, by maturity period,
were: 2.76% for 3 months or less; 1.89% for over 3 to 6 months; 1.77% for
over 6 to 12 months; and 4.00% for over 12 months. The overall
weighted average interest rate for accounts of $100,000 or more was
2.62%.
|
Borrowings. Our
borrowings consist of Federal Home Loan Bank advances, reverse repurchase
agreements and subordinated debentures. At December 31, 2009, we had $39.9
million in advances and access to additional Federal Home Loan Bank advances of
up to $17.2 million, and we had $18.9 million in securities sold under
agreements to repurchase. For additional information on our subordinated
debentures, please see note 11 to our Consolidated Financial Statements,
contained within our Annual Report to Stockholders.
The
following table sets forth information concerning balances and interest rates on
all of our short-term borrowings at and for the periods shown:
At
or For the Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(Dollars
in thousands)
|
||||||||||||
Balance
at end of
year
|
$ | 62,790 | $ | 108,957 | $ | 30,167 | ||||||
Average
balance during
year
|
93,479 | 66,505 | 34,310 | |||||||||
Maximum
outstanding at any month end
|
97,776 | 152,376 | 39,435 | |||||||||
Weighted
average interest rate at end of year
|
2.64 | % | 1.51 | % | 4.02 | % | ||||||
Average
interest rate during
year
|
2.15 | % | 2.45 | % | 4.70 | % |
Subsidiary
Activities
First
Clover Leaf Financial Corp.’s only subsidiary is First Clover Leaf
Bank. First Clover Leaf Bank’s only subsidiary is Clover Leaf
Financial Services, an insurance agency that sells credit life and disability
insurance policies.
Personnel
As of
December 31, 2009, we had 71 full-time employees and 16 part-time
employees. Our employees are not represented by any collective
bargaining group. Management believes that we have good working
relations with our employees.
26
SUPERVISION
AND REGULATION
General
First
Clover Leaf Bank is a federally chartered savings association, and as such is
regulated and supervised by the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation. This regulation and supervision establishes a
comprehensive framework of activities in which a financial institution may
engage and is intended primarily for the protection of the Federal Deposit
Insurance Corporation’s deposit insurance funds and depositors. Under
this system of federal regulation, financial institutions are periodically
examined to ensure that they satisfy applicable standards with respect to their
capital adequacy, assets, management, earnings, liquidity and sensitivity to
market interest rates. After completing an examination, the federal
agency critiques the financial institution’s operations and assigns its rating
(known as an institution’s CAMELS). Under federal law, an institution
may not disclose its CAMELS rating to the public. First Clover Leaf
Bank also is a member of, and owns stock in, the Federal Home Loan Bank of
Chicago, which is one of the twelve regional banks in the Federal Home Loan Bank
System. First Clover Leaf Bank also is regulated to a lesser extent
by the Board of Governors of the Federal Reserve System, governing reserves to
be maintained against deposits and other matters. The Office of
Thrift Supervision examines First Clover Leaf Bank and prepares reports for the
consideration of its board of directors on any operating
deficiencies.
Any
change in these laws or regulations, whether by the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, or Congress, could have a
material adverse impact on us and our operations.
Proposed
Federal Regulation
Legislation
has been proposed that would implement sweeping changes to the current bank
regulatory structure. The proposal would, among other things, merge the Office
of Thrift Supervision into the Office of the Comptroller of the
Currency. If the Office of Thrift Supervision is eliminated, First
Clover Leaf Financial Corp. would become a bank holding company subject to
regulation and supervision under the Bank Holding Company Act of 1956, and the
supervision and regulation of the Board of Governors of the Federal Reserve
System, including holding company regulatory capital requirements to which we
would not be subject as a savings and loan holding company.
Federal
Banking Regulation
Business
Activities. A federal savings association derives its lending
and investment powers from the Home Owners’ Loan Act, as amended, and the
regulations of the Office of Thrift Supervision. Under these laws and
regulations, First Clover Leaf Bank may invest in mortgage loans secured by
residential and commercial real estate, commercial business and consumer loans,
certain types of debt securities and certain other loans and
assets. First Clover Leaf Bank also may establish subsidiaries that
may engage in activities not otherwise permissible for First Clover Leaf Bank
directly, including real estate investment, securities brokerage and insurance
agency.
Capital
Requirements. The Office of Thrift Supervision regulations
require savings associations to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS rating system) and an 8%
risk-based capital ratio. The prompt corrective action standards
discussed below, in effect, establish a minimum 2% tangible capital
standard.
The
risk-based capital standard for savings associations requires the maintenance of
Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to adjusted total assets of at least 4% and to
risk-weighted assets of at least 8%, respectively. In determining the
amount of risk-weighted assets, all assets, including certain off-balance sheet
assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the
Office of Thrift Supervision capital regulation based on the risks inherent in
the type of asset. Core capital is defined as common stockholders’
equity (including retained earnings), certain noncumulative perpetual preferred
stock and related surplus and minority interests in equity accounts of
consolidated subsidiaries, less intangibles other than certain mortgage
servicing rights and credit card relationships. The components of
supplementary capital currently
27
include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock,
allowance for loan and lease losses up to a maximum of 1.25% of risk-weighted
assets, and up to 45% of net unrealized gains on available-for-sale equity
securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.
At
December 31, 2009, First Clover Leaf Bank’s capital exceeded all applicable
requirements.
Loans to One
Borrower. A
federal savings association generally may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of risk-based capital on
an unsecured basis. An additional amount may be loaned, equal to 10%
of risk-based capital, if the loan is secured by readily marketable collateral,
which generally does not include real estate. At December 31, 2009, the maximum
amount that First Clover Leaf Bank could have loaned to any one borrower under
the 15% limit of risk-based capital was approximately $8.9
million. At that date, the largest lending relationship with First
Clover Leaf Bank totaled $17.9 million and consisted of two loans secured
primarily by accounts receivable and corporate assets. First Clover Leaf Bank
also has an agreement in place with another financial institution to participate
in this loan and had participated $2.3 million to this financial institution at
year end. First Clover Leaf Bank’s remaining outstanding balance on
this loan at year end was $4.3 million. Although
this relationship was over the legal lending limit of First Clover
Leaf Bank as calculated at December 31, 2009, First Clover Leaf Bank’s legal
lending limit declined in October 2008, primarily due to a $28.0 million
dividend paid to the holding company from First Clover Leaf Bank, and at the
time this loan was originated the loan amount complied with the
regulation. Accordingly, First Clover Leaf Bank is considered to be
in compliance with its legal lending limit at December 31, 2009 with respect to
this relationship.
Qualified Thrift
Lender Test. As a federal savings
association, First Clover Leaf Bank is subject to a qualified thrift lender, or
“QTL,” test. Under the QTL test, First Clover Leaf Bank must maintain
at least 65% of its “portfolio assets” in “qualified thrift investments” in at
least nine months of the most recent 12-month period. “Portfolio
assets” generally means total assets of a savings institution, less the sum of
specified liquid assets up to 20% of total assets, goodwill and other intangible
assets, and the value of property used in the conduct of the savings
association’s business.
“Qualified
thrift investments” include various types of loans made for residential and
housing purposes, investments related to such purposes, including certain
mortgage-backed and related securities, and loans for personal, family,
household and certain other purposes up to a limit of 20% of portfolio
assets. “Qualified thrift investments” also include 100% of an
institution’s credit card loans, education loans and small business
loans. First Clover Leaf Bank also may satisfy the QTL test by
qualifying as a “domestic building and loan association” as defined in the
Internal Revenue Code of 1986.
A savings
association that fails the QTL test must either convert to a bank charter or
operate under specified restrictions. At December 31, 2009, First
Clover Leaf Bank maintained portfolio assets in qualified thrift investments in
excess of the percentage required to qualify it under the QTL test.
Capital
Distributions. Office of Thrift
Supervision regulations govern capital distributions by a federal savings
association, which include cash dividends, stock repurchases and other
transactions charged to the institution’s capital account. A savings
association must file an application for approval of a capital distribution
if:
|
·
|
the
total capital distributions for the applicable calendar year exceed the
sum of the savings association’s net income for that year to date plus the
savings association’s retained net income for the preceding two
years;
|
|
·
|
the
savings association would not be at least adequately capitalized following
the distribution;
|
|
·
|
the
distribution would violate any applicable statute, regulation, agreement
or Office of Thrift Supervision-imposed condition;
or
|
|
·
|
the
savings association is not eligible for expedited treatment of its
filings.
|
28
Even if
an application is not otherwise required, every savings association that is a
subsidiary of a holding company must still file a notice with the Office of
Thrift Supervision at least 30 days before the board of directors declares a
dividend or approves a capital distribution.
The
Office of Thrift Supervision may disapprove a notice or application
if:
|
·
|
the
savings association would be undercapitalized following the
distribution;
|
|
·
|
the
proposed capital distribution raises safety and soundness concerns;
or
|
|
·
|
the
capital distribution would violate a prohibition contained in any statute,
regulation or agreement.
|
Liquidity. A
federal savings association is required to maintain a sufficient amount of
liquid assets to ensure its safe and sound operation.
Community
Reinvestment Act and Fair Lending Laws. All savings
associations have a responsibility under the Community Reinvestment Act and
related regulations of the Office of Thrift Supervision to help meet the credit
needs of their communities, including low- and moderate-income
neighborhoods. In connection with its examination of a federal
savings association, the Office of Thrift Supervision is required to assess the
savings association’s record of compliance with the Community Reinvestment
Act. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes. A savings
association’s failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in regulatory restrictions on its
activities. The failure to comply with the Equal Credit Opportunity
Act and the Fair Housing Act could result in enforcement actions by the Office
of Thrift Supervision, as well as other federal regulatory agencies and the
Department of Justice. First Clover Leaf Bank received a
“satisfactory” Community Reinvestment Act rating in its most recent federal
examination.
Transactions with
Related Parties. A federal savings association’s authority to
engage in transactions with its “affiliates” is limited by Office of Thrift
Supervision regulations and by Sections 23A and 23B of the Federal Reserve
Act. The term “affiliates” for these purposes generally means any
company that controls or is under common control with an
institution. First Clover Leaf Financial Corp. will be an affiliate
of First Clover Leaf Bank. In general, transactions with affiliates
must be on terms that are as favorable to the savings association as comparable
transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the savings
association’s capital. Collateral in specified amounts must usually
be provided by affiliates in order to receive loans from the savings
association. In addition, Office of Thrift Supervision regulations
prohibit a savings association from lending to any of its affiliates that are
engaged in activities that are not permissible for bank holding companies and
from purchasing the securities of any affiliate, other than a
subsidiary.
First
Clover Leaf Bank’s authority to extend credit to its directors, executive
officers and 10% stockholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and
22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.
Among other things, these provisions require that extensions of credit to
insiders (i) be made on terms that are substantially the same as, and follow
credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons and that do not
involve more than the normal risk of repayment or present other unfavorable
features, and (ii) not exceed certain limitations on the amount of credit
extended to such persons, individually and in the aggregate, which limits are
based, in part, on the amount of First Clover Leaf Bank’s capital. In
addition, extensions of credit in excess of certain limits must be approved by
First Clover Leaf Bank’s board of directors.
Enforcement. The
Office of Thrift Supervision has primary enforcement responsibility over federal
savings institutions and has the authority to bring enforcement action against
all “institution-affiliated parties,” including stockholders, and attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured
institution. Formal enforcement action may range
29
from the
issuance of a capital directive or cease and desist order to removal of officers
and/or directors of the institution, receivership, conservatorship or the
termination of deposit insurance. Civil penalties cover a wide range
of violations and actions, and range up to $25,000 per day, unless a finding of
reckless disregard is made, in which case penalties may be as high as $1 million
per day. The Federal Deposit Insurance Corporation also has the
authority to recommend to the Director of the Office of Thrift Supervision that
enforcement action be taken with respect to a particular savings
institution. If action is not taken by the Director, the Federal
Deposit Insurance Corporation has authority to take action under specified
circumstances.
Standards for
Safety and Soundness. Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions. These standards relate to, among other things, internal
controls, information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, compensation, and other
operational and managerial standards as the agency deems
appropriate. The federal banking agencies adopted Interagency
Guidelines Prescribing Standards for Safety and Soundness to implement the
safety and soundness standards required under federal law. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. The guidelines address internal
controls and information systems, internal audit systems, credit underwriting,
loan documentation, interest rate risk exposure, asset growth, compensation,
fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard. If an
institution fails to meet these standards, the appropriate federal banking
agency may require the institution to submit a compliance plan.
Prompt Corrective
Action Regulations. Under the prompt
corrective action regulations, the Office of Thrift Supervision is required and
authorized to take supervisory actions against undercapitalized savings
associations. For this purpose, a savings association is placed in one of the
following five categories based on the savings association’s
capital:
|
·
|
well-capitalized
(at least 5% leverage capital, 6% tier 1 risk-based capital and 10% total
risk-based capital);
|
|
·
|
adequately
capitalized (at least 4% leverage capital (3% for savings banks with a
composite examination rating of 1), 4% tier 1 risk-based capital and 8%
total risk-based capital);
|
|
·
|
undercapitalized
(less than 4% leverage capital (3% for savings banks with a composite
examination rating of 1), 4% tier 1 risk-based capital or 8% total
risk-based capital);
|
|
·
|
significantly
undercapitalized (less than 3% leverage capital, 3% tier 1 risk-based
capital or 6% total risk-based capital);
and
|
|
·
|
critically
undercapitalized (less than 2% tangible
capital).
|
Generally,
the banking regulator is required to appoint a receiver or conservator for a
savings association that is “critically undercapitalized.” The
regulation also provides that a capital restoration plan must be filed with the
Office of Thrift Supervision within 45 days of the date a bank receives notice
that it is “undercapitalized,” “significantly undercapitalized” or “critically
undercapitalized.” In addition, numerous mandatory supervisory
actions become immediately applicable to the savings association, including, but
not limited to, restrictions on growth, investment activities, capital
distributions and affiliate transactions. The Office of Thrift
Supervision may also take any one of a number of discretionary supervisory
actions against undercapitalized savings associations, including the issuance of
a capital directive and the replacement of senior executive officers and
directors.
At
December 31, 2009, First Clover Leaf Bank met the criteria for being considered
“well-capitalized.”
Insurance of
Deposit Accounts. In
October 2008, deposit insurance by the Federal Deposit Insurance Corporation was
increased to a maximum of $250,000 per depositor. On January 1, 2014,
the maximum insurance amount will return to $100,000 per depositor for all
deposit accounts except certain retirement accounts, which will remain at
$250,000 per depositor.
30
Pursuant
to the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), the
Federal Deposit Insurance Corporation is authorized to set the reserve ratio for
the Deposit Insurance Fund annually at between 1.15% and 1.5% of estimated
insured deposits. As of June 30, 2008, the reserve ratio had decreased to 1.01%
as a result of bank failures. As part of a plan to restore the
reserve ratio to 1.15%, the Federal Deposit Insurance Corporation imposed a
special assessment equal to five basis points of assets less Tier 1 capital as
of June 30, 2009, which was payable on September 30, 2009. In
addition, the Federal Deposit Insurance Corporation has increased its quarterly
deposit insurance assessment rates and amended the method by which rates are
calculated. Beginning in the second quarter of 2009, institutions are
assigned an initial base assessment rate ranging from 12 to 45 basis points of
deposits depending on risk category. The initial base assessment is then
adjusted based upon the level of unsecured debt, secured liabilities, and
brokered deposits to establish a total base assessment rate ranging from seven
to 77.5 basis points.
On
November 12, 2009, the Federal Deposit Insurance Corporation approved a final
rule requiring insured depository institutions to prepay on December 30, 2009,
their estimated quarterly risk-based assessments for the fourth quarter of 2009,
and for all of 2010, 2011, and 2012. Estimated assessments for
the fourth quarter of 2009 and for all of 2010 are based upon the assessment
rate in effect on September 30, 2009, with three basis points added for the 2011
and 2012 assessment rates. In addition, a 5% annual growth in the
assessment base is assumed. Prepaid assessments are to be applied
against the actual quarterly assessments until exhausted, and may not be applied
to any special assessments that may occur in the future. Any unused
prepayments will be returned to the institution on June 30, 2013. On
December 30, 2009, we prepaid $2.8 million in estimated assessment fees for the
fourth quarter of 2009 through 2012. Because the prepaid assessments
represent the prepayment of future expense, they do not affect our regulatory
capital (the prepaid asset will have a risk-weighting of 0%) or tax
obligations.
Temporary
Liquidity Guarantee Program. On October 14, 2008, the Federal
Deposit Insurance Corporation announced a new program – the Temporary Liquidity
Guarantee Program. This program has two components. One guarantees
newly issued senior unsecured debt of a participating organization, up to
certain limits established for each institution, issued between October 14, 2008
and June 30, 2009. The Federal Deposit Insurance Corporation will pay the unpaid
principal and interest on a Federal Deposit Insurance Corporation-guaranteed
debt instrument upon the uncured failure of the participating entity to make a
timely payment of principal or interest in accordance with the terms of the
instrument. The guarantee will remain in effect until June 30, 2012.
In return for the Federal Deposit Insurance Corporation’s guarantee,
participating institutions will pay the Federal Deposit Insurance Corporation a
fee based on the amount and maturity of the debt. First Clover Leaf
Bank is not participating in this component of the Temporary Liquidity Guarantee
Program.
The other
component of the program provides full federal deposit insurance coverage for
non-interest bearing transaction deposit accounts, regardless of dollar amount,
originally, until December 31, 2009. This program was extended to June 30,
2010. Assessments on balances in noninterest-bearing transaction
accounts that exceed the existing deposit insurance limit of $250,000 will be
assessed to insured depository institutions that have not opted out of this
component of the Temporary Liquidity Guarantee Program. First Clover
Leaf Bank is not participating in this component of the Temporary Liquidity
Guarantee Program.
Prohibitions
Against Tying Arrangements. Federal savings
associations are prohibited, subject to some exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or its affiliates or not obtain
services of a competitor of the institution.
Federal Home Loan
Bank System. First Clover Leaf Bank is a member of the Federal
Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks. The Federal Home Loan Bank System provides a central credit
facility primarily for member institutions. As a member of the
Federal Home Loan Bank of Chicago, First Clover Leaf Bank is required to acquire
and hold shares of capital stock in the Federal Home Loan Bank in an amount at
least equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20th
of its borrowings from the Federal Home Loan Bank, whichever
31
is
greater. As of December 31, 2009, First Clover Leaf Bank was in
compliance with this requirement and held $4.3 million of excess stock in the
Federal Home Loan Bank of Chicago.
Federal
Reserve System
Federal
Reserve Board regulations require savings associations to maintain
non-interest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts. As of
December 31, 2009, First Clover Leaf Bank was in compliance with these reserve
requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the Office of Thrift Supervision.
The
USA PATRIOT Act
The USA
PATRIOT Act gives the federal government new powers to address terrorist threats
through enhanced domestic security measures, expanded surveillance powers,
increased information sharing and broadened anti-money laundering
requirements. The Act also requires the federal banking regulators to
take into consideration the effectiveness of controls designed to combat
money-laundering activities in determining whether to approve a merger or other
acquisition application of an FDIC-insured institution. As such, if
we or First Clover Leaf Bank were to engage in a merger or other acquisition,
the effectiveness of its anti-money-laundering controls would be considered as
part of the application process. First Clover Leaf Bank believes it
has established policies, procedures and systems that comply with the applicable
requirements of the law.
Holding
Company Regulation
General. First
Clover Leaf Financial Corp. is a unitary savings and loan holding company,
subject to regulation and supervision by the Office of Thrift
Supervision. The Office of Thrift Supervision has enforcement
authority over First Clover Leaf Financial Corp. and its non-savings institution
subsidiaries. Among other things, this authority permits the Office
of Thrift Supervision to restrict or prohibit activities that are determined to
be a risk to First Clover Leaf Bank.
First
Clover Leaf Financial Corp. is limited to the activities permissible for
financial holding companies or for multiple savings and loan holding
companies. A financial holding company may engage in activities that
are financial in nature, including underwriting equity securities and insurance,
incidental to financial activities or complementary to a financial
activity. A multiple savings and loan holding company is generally
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
Office of Thrift Supervision, and certain additional activities authorized by
Office of Thrift Supervision regulations.
Federal
law prohibits a savings and loan holding company, directly or indirectly, or
through one or more subsidiaries, from acquiring control of another savings
institution or holding company thereof, without prior written approval of the
Office of Thrift Supervision. It also prohibits the acquisition or
retention of, with specified exceptions, more than 5% of the equity securities
of a company engaged in activities that are not closely related to banking or
financial in nature or acquiring or retaining control of an institution that is
not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources and future prospects of the
savings institution involved, the effect of the acquisition on the risk to the
insurance fund, the convenience and needs of the community and competitive
factors.
Federal
Securities Laws
First
Clover Leaf Financial Corp.’s common stock is registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. First
Clover Leaf Financial Corp. is subject to the information, proxy solicitation,
insider trader restrictions and other requirements under the Securities Exchange
Act of 1934.
32
First
Clover Leaf Financial Corp. common stock held by persons who are affiliates
(generally officers, directors and principal stockholders) of First Clover Leaf
Financial Corp. may not be resold without registration or unless sold in
accordance with certain resale restrictions. If First Clover Leaf
Financial Corp. meets specified current public information requirements, each
affiliate of First Clover Leaf Financial Corp. is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Sarbanes-Oxley
Act of 2002
The
Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance,
auditing and accounting, executive compensation, and enhanced and timely
disclosure of corporate information. As directed by the Sarbanes-Oxley Act of
2002, our Chief Executive Officer and Chief Financial Officer each are required
to certify that our quarterly and annual reports do not contain any untrue
statement of a material fact. The rules adopted by the Securities and Exchange
Commission under the Sarbanes-Oxley Act of 2002 have several requirements,
including having these officers certify that: they are responsible for
establishing, maintaining and regularly evaluating the effectiveness of our
internal controls; they have made certain disclosures to our auditors and the
audit committee of the board of directors about our internal controls; and they
have included information in our quarterly and annual reports about their
evaluation and whether there have been significant changes in our internal
controls or in other factors that could significantly affect internal
controls.
TAXATION
Federal
Taxation
General. First Clover
Leaf Financial Corp. and First Clover Leaf Bank file a consolidated tax return
and are subject to federal income taxation in the same general manner as other
corporations, with some exceptions discussed below. First Clover Leaf
Financial Corp.’s and First Clover Leaf Bank’s tax returns have not been audited
during the past five years. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to First Clover Leaf
Financial Corp. or First Clover Leaf Bank.
Method of
Accounting. For federal
income tax purposes, First Clover Leaf Financial Corp. and First Clover Leaf
Bank currently report their income and expenses on the accrual method of
accounting and use a tax year ending December 31 for filing their federal income
tax returns.
Bad Debt
Reserves. Prior to the
Small Business Protection Act of 1996 (the “1996 Act”), we were permitted to
establish a reserve for bad debts and to make annual additions to the
reserve. These additions could, within specified formula limits, be
deducted in arriving at our taxable income. We were required to use
the specific charge off method in computing our bad debt deduction beginning
with our 1996 federal tax return. Savings institutions were required
to recapture any excess reserves over those established as of December 31, 1987
(base year reserve). At December 31, 2009, First Clover Leaf Bank had
no reserves subject to recapture.
Taxable
Distributions and Recapture. Prior to the
1996 Act, bad debt reserves created prior to January 1, 1988 were subject to
recapture into taxable income if First Clover Leaf Bank failed to meet certain
thrift asset and definitional tests. Federal legislation has
eliminated these thrift related recapture rules. At December 31, 2009, our total
federal pre-1988 base year reserve was approximately $3.0
million. However, under current law, pre-1988 base year reserves
remain subject to recapture if First Clover Leaf Bank makes certain non-dividend
distributions, repurchases any of its stock, pays dividends in excess of tax
earnings and profits, or ceases to maintain a bank charter.
Alternative
Minimum Tax. The Internal
Revenue Code of 1986, as amended (the “Code”) imposes an alternative minimum tax
(“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax
preferences (“alternative minimum taxable income” or “AMTI”). The AMT
is payable to the extent such AMTI is in excess of an exemption amount and the
AMT exceeds the regular income tax. Net operating losses can offset
no more than 90% of AMTI. Certain payments of alternative minimum tax
may be used as credits against regular tax liabilities in
33
future
years. First Clover Leaf Bank has not been subject to the alternative
minimum tax and has no such amounts available as credits for
carryover.
Net Operating
Loss Carryovers. A financial
institution may carry back net operating losses to the preceding two taxable
years and forward to the succeeding 20 taxable years. At December 31,
2009, First Clover Leaf Bank had no net operating loss carryforwards for federal
income tax purposes.
Corporate
Dividends-Received Deduction. First Clover
Leaf Financial Corp. may exclude from its income 100% of dividends received from
First Clover Leaf Bank as a member of the same affiliated group of
corporations. The corporate dividends-received deduction is 80% in
the case of dividends received from corporations with which a corporate
recipient does not file a consolidated return, and corporations which own less
than 20% of the stock of a corporation distributing a dividend may deduct only
70% of dividends received or accrued on their behalf.
State
Taxation
Illinois State
Taxation. First Clover
Leaf Financial Corp. is required to file Illinois income tax returns and pay tax
at a stated tax rate of 7.30% of Illinois taxable income. For these purposes,
Illinois taxable income generally means federal taxable income subject to
certain modifications, primarily the exclusion of interest income on United
States obligations.
ITEM
1A.
RISK
FACTORS
The risks
set forth below, in addition to the other risks described in this Annual Report
on Form 10-K, may adversely affect our business, financial condition and
operating results. In addition to the risks set forth below and the
other risks described in this annual report, there may also be additional risks
and uncertainties that are not currently known to us or that we currently deem
to be immaterial that could materially and adversely affect our business,
financial condition or operating results. As a result, past financial
performance may not be a reliable indicator of future performance, and
historical trends should not be used to anticipate results or trends in future
periods. Further, to the extent that any of the information contained in this
Annual Report on Form 10-K constitutes forward-looking statements, the risk
factors set forth below also are cautionary statements identifying important
factors that could cause our actual results to differ materially from those
expressed in any forward-looking statements made by or on behalf of
us.
Concentration
of loans in our primary market area, which has recently experienced an economic
downturn, may increase risk.
Our
success depends primarily on the general economic conditions in the St. Louis
metropolitan area, as nearly all of our loans are to customers in this
market. Accordingly, the local economic conditions in this market
have a significant impact on the ability of borrowers to repay loans as well as
our ability to originate new loans. As such, a continuation of the
weakness in real estate values in this market would also lower the value of the
collateral securing loans on properties in our market. In addition, a
continued weakening in general economic conditions caused by inflation,
recession, unemployment or other factors beyond our control could negatively
affect our financial results.
Risks
Related to Recent Economic Conditions and Governmental Response
Efforts
Our
business has been and may continue to be adversely affected by current
conditions in the financial markets and economic conditions generally. The
global, United States and St. Louis economies are experiencing significantly
reduced business activity and consumer spending as a result of, among other
factors, disruptions in the capital and credit markets. Dramatic declines in the
housing market, with falling home prices and increasing foreclosures and
unemployment, have resulted in significant write-downs of asset values by
financial institutions, including government-sponsored entities and major
commercial and investment banks. A sustained weakness or weakening in business
and economic conditions generally or specifically in the principal markets in
which we do business could have one or more of the following adverse effects on
our business:
34
• a
decrease in the demand for loans or other products and services offered by
us;
• a
decrease in the value of our loans or other assets secured by residential or
commercial real estate;
• a
decrease in deposit balances due to overall reductions in the accounts of
customers;
• an
impairment of our investment securities;
• an
increase in the number of borrowers who become delinquent, file for protection
under bankruptcy laws or default on their loans or other obligations to us. An
increase in the number of delinquencies, bankruptcies or defaults could result
in a higher level of nonperforming assets, net charge-offs and provision for
credit losses, which would reduce our earnings.
Any
future Federal Deposit Insurance Corporation insurance premium increases will
adversely affect our earnings.
On May
22, 2009, the Federal Deposit Insurance Corporation adopted a final rule levying
a five basis point special assessment on each insured depository institution’s
assets minus Tier 1 capital as of June 30, 2009. We recorded an
expense of $280,000 during the quarter ended June 30, 2009, to reflect the
special assessment. Any further special assessments that the Federal
Deposit Insurance Corporation levies will be recorded as an expense during the
appropriate period. In addition, the Federal Deposit Insurance
Corporation increased the general assessment rate and our prior credits for
federal deposit insurance were fully utilized during the quarter ended June 30,
2009. Therefore, our Federal Deposit Insurance Corporation general
insurance premium expense will increase compared to prior periods.
Changes
in laws and regulations and the cost of regulatory compliance with new laws and
regulations may adversely affect our operations and our income.
In
response to the developments described above, Congress has taken actions that
are intended to strengthen confidence and encourage liquidity in financial
institutions, and the Federal Deposit Insurance Corporation has taken actions to
increase insurance coverage on deposit accounts.
The
potential exists for additional federal or state laws and regulations, or
changes in policy, regarding lending and funding practices and liquidity
standards, and bank regulatory agencies have been active in responding to
concerns and trends identified in examinations, and have issued many formal
enforcement orders. Bank regulatory agencies, such as the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation, govern the
activities in which we may engage, primarily for the protection of depositors,
and not for the protection or benefit of potential investors. In
addition, new laws, regulations, and other regulatory changes may increase our
costs of regulatory compliance and of doing business, and otherwise affect our
operations. New laws, regulations, and other regulatory changes may
significantly affect the markets in which we do business, the markets for and
value of our loans and investments, and our ongoing operations, costs and
profitability. Proposals limiting our rights as a creditor could
result in credit losses or increased expense in pursuing our remedies as a
creditor.
Legislative
proposals have been introduced that would eliminate our primary federal
regulator, require First Clover Leaf bank to convert to a national bank or state
bank, and require First Clover Leaf Financial Corp. to become a bank holding
company.
Legislation
has been proposed that would implement sweeping changes to the current bank
regulatory structure. The proposal would, among other things, merge the Office
of Thrift Supervision into the Office of the Comptroller of the
Currency. If the Office of Thrift Supervision is eliminated, First
Clover Leaf Financial Corp. would become a bank holding company subject to
regulation and supervision under the Bank Holding Company Act of 1956, and the
supervision and regulation of the Board of Governors of the Federal Reserve
System, including holding company regulatory capital requirements to which we
would not be subject as a savings and loan holding company.
35
Future
legislative or regulatory actions responding to perceived financial and market
problems could impair our ability to collect our loans and foreclose on
collateral.
There
have been proposals made by members of Congress and others that would reduce the
amount distressed borrowers are otherwise contractually obligated to pay under
their mortgage loans and limit an institution’s ability to foreclose on mortgage
collateral. Were proposals such as these, or other proposals limiting
our rights as a creditor, to be implemented, we could experience increased
credit losses or increased expense in pursuing our remedies as a
creditor. In addition, there have been legislative proposals to
create a federal consumer protection agency that may, among other powers, have
the ability to limit our rights as a creditor.
If
our investment in the common stock of the Federal Home Loan Bank of Chicago is
classified as other-than-temporarily impaired or as permanently impaired, our
earnings and stockholders’ equity could decrease.
We own
common stock of the Federal Home Loan Bank of Chicago. We hold this stock to
qualify for membership in the Federal Home Loan Bank System and to be eligible
to borrow funds under the Federal Home Loan Bank of Chicago’s advance program.
The aggregate cost and fair value of our Federal Home Loan Bank of Chicago
common stock as of December 31, 2009 was $6.3 million based on its par value.
Federal Home Loan Bank common stock is not a marketable security and can only be
redeemed by the Federal Home Loan Bank. However, the Federal Home
Loan Bank of Chicago is currently not repurchasing excess stock
outstanding.
In
addition, Federal Home Loan Banks may be subject to accounting rules and asset
quality risks that could materially lower their regulatory capital. In an
extreme situation, it is possible that the capitalization of a Federal Home Loan
Bank, including the Federal Home Loan Bank of Chicago, could be substantially
diminished or reduced to zero. Consequently, we believe that there is a risk
that our investment in Federal Home Loan Bank of Chicago common stock could be
deemed impaired at some time in the future, and if this occurs, it would cause
our earnings and stockholders’ equity to decrease by the after-tax amount of the
impairment charge.
Our
earnings have been negatively affected by the suspension of dividends by the
Federal Home Loan Bank of Chicago since the fourth quarter of 2007 on its common
stock.
The
Federal Home Loan Bank of Chicago has not paid a dividend since the fourth
quarter of 2007, and we may not receive dividends from the Federal Home Loan
Bank of Chicago in the near future. We received $129,000 in total
dividends from the Federal Home Loan Bank of Chicago during fiscal 2007, and the
failure of the Federal Home Loan Bank of Chicago to pay dividends for any
quarter will reduce our earnings during that quarter. In addition,
the Federal Home Loan Bank of Chicago is an important source of liquidity for
us, and any restrictions on their operations may hinder our ability to use it as
a liquidity source.
We
may face increasing deposit-pricing pressures, which may, among other things,
reduce our profitability.
Checking
and savings account balances and other forms of deposits can decrease when our
deposit customers perceive alternative investments, such as the stock market or
other non-depository investments, as providing superior expected returns or seek
to spread their deposits over several banks to maximize FDIC insurance coverage.
Furthermore, technology and other changes have made it more convenient for bank
customers to transfer funds into alternative investments, including products
offered by other financial institutions or non-bank service providers.
Additional increases in short-term interest rates could increase transfers of
deposits to higher yielding deposits. Efforts and initiatives we undertake to
retain and increase deposits, including deposit pricing, can increase our costs.
When bank customers move money out of bank deposits in favor of alternative
investments or into higher yielding deposits, or spread their accounts over
several banks, we can lose a relatively inexpensive source of funds, thus
increasing our funding costs.
36
Technological
advances impact our business.
The
banking industry is undergoing technological changes with frequent introductions
of new technology-driven products and services. In addition to improving
customer services, the effective use of technology increases efficiency and
enables financial institutions to reduce costs. Our future success will depend,
in part, on our ability to address the needs of our customers by using
technology to provide products and services that will satisfy customer demands
for convenience as well as to create additional efficiencies in operations. Many
competitors have substantially greater resources to invest in technological
improvements. We may not be able to effectively implement new technology-driven
products and services or successfully market such products and services to our
customers.
Our
information systems may experience an interruption or breach in
security.
We rely
heavily on communications and information systems to conduct our business. Any
failure, interruption, or breach in security or operational integrity of these
systems could result in failures or disruptions in our customer relationship
management, general ledger, deposit, loan, and other systems. While we have
policies and procedures designed to prevent or limit the effect of the failure,
interruption, or security breach of our information systems, we cannot assure
you that any such failures, interruptions, or security breaches will not occur
or, if they do occur, that they will be adequately addressed. The occurrence of
any failures, interruptions, or security breaches of our information systems
could damage our reputation, result in a loss of customer business, subject us
to additional regulatory scrutiny, or expose us to civil litigation and possible
financial liability, any of which could have a material adverse effect on our
financial condition and results of operations.
An
Inadequate Allowance for Loan Losses Would Negatively Impact Our Results of
Operations.
We are
exposed to the risk that our customers will be unable to repay their loans
according to their terms and that any collateral securing the payment of their
loans will not be sufficient to avoid losses. Credit losses are inherent in the
lending business and could have a material adverse effect on our operating
results. Volatility and deterioration in the broader economy may also increase
our risk of credit losses. The determination of an appropriate level of
allowance for loan losses is an inherently uncertain process and is based on
numerous assumptions. The amount of future losses is susceptible to changes in
economic, operating and other conditions, including changes in interest rates,
that may be beyond our control, and charge-offs may exceed current estimates. We
evaluate the collectability of our loan portfolio and provide an allowance for
loan losses that we believe is adequate based upon such factors as, including,
but not limited to: the risk characteristics of various classifications of
loans; previous loan loss experience; specific loans that have loss potential;
delinquency trends; the estimated fair market value of the collateral; current
economic conditions; the views of our regulators; and geographic and industry
loan concentrations. If any of our evaluations are incorrect and borrower
defaults result in losses exceeding our allowance for loan losses, our results
of operations could be significantly and adversely affected. We cannot assure
you that our allowance will be adequate to cover probable loan losses inherent
in our portfolio.
The
Need to Account for Assets at Market Prices May Adversely Affect Our Results of
Operations.
We report
certain assets, including investments and securities, at fair value. Generally,
for assets that are reported at fair value we use quoted market prices or
valuation models that utilize market data inputs to estimate fair value. Because
we carry these assets on our books at their fair value, we may incur losses even
if the asset in question presents minimal credit risk. Given the continued
disruption in the capital markets, we may be required to recognize
other-than-temporary impairments in future periods with respect to securities in
our portfolio. The amount and timing of any impairment recognized will depend on
the severity and duration of the decline in fair value of the securities and our
estimation of the anticipated recovery period.
37
Our
Commercial Real Estate, Commercial Business and Construction Loans Expose Us to
Increased Credit Risks.
At
December 31, 2009, our portfolio of commercial real estate loans totaled $179.9
million, or 42.8% of total loans, our commercial business loan portfolio totaled
$63.1 million, or 15.0% of total loans, and our portfolio of construction and
land loans totaled $45.4 million, or 10.8% of total loans. We plan to continue
to emphasize the origination of these types of loans. Commercial real estate,
commercial business and construction loans generally have greater credit risk
than one- to four-family residential mortgage loans because repayment of these
loans often depends on the successful business operations of the borrowers.
These loans typically have larger loan balances to single borrowers or groups of
related borrowers compared to one- to four-family residential mortgage loans.
Many of our borrowers also have more than one commercial real estate, commercial
business or construction loan outstanding with us. Consequently, an adverse
development with respect to one loan or one credit relationship may expose us to
significantly greater risk of loss, compared to an adverse development with
respect to a one- to four-family residential mortgage loan.
Changes
in the Value of Goodwill and Intangible Assets Could Reduce Our Earnings and
Stockholders’ Equity.
We are
required by U.S. generally accepted accounting principles to test goodwill and
other intangible assets for impairment at least annually. Testing for impairment
of goodwill and intangible assets involves the identification of reporting units
and the estimation of fair values. The estimation of fair values involves a high
degree of judgment and subjectivity in the assumptions used. As of December 31,
2009, if our goodwill and intangible assets were fully impaired and we were
required to charge-off all of our goodwill and intangible assets, the pro forma
reduction to our stockholders’ equity would be approximately $1.60 per
share. However, we did test for impairment of goodwill and intangible
assets as of December 31, 2009, and it is management’s opinion that we were not
impaired at that time.
ITEM
1B.
UNRESOLVED STAFF
COMMENTS
None
ITEM
2.
PROPERTIES
The
following table provides certain information with respect to our offices as of
December 31, 2009:
Location
|
Leased or Owned
|
Year Acquired
|
Net
Book Value
of Real Property
|
(In
thousands)
|
|||
Main
Office
6814
Goshen Road
Edwardsville,
Illinois 62025
|
Owned
|
2006
|
$3,530
|
2143
Route 157
Edwardsville,
Illinois 62025
|
Owned
|
2006
|
991
|
300
St. Louis Street
Edwardsville,
Illinois 62025
|
Owned
|
1964
|
1,718
|
1046
E. Madison St
Wood
River, Illinois 62095
|
Owned
|
2008
|
1,966
|
38
The net
book value of our premises, land and equipment was approximately $11.1 million
at December 31, 2009. In 2008, we purchased land in Highland,
Illinois for possible future branch expansion. First Clover Leaf Bank
continues to pursue other expansion opportunities.
ITEM
3.
LEGAL
PROCEEDINGS
We are
involved, from time to time, as plaintiff or defendant in various legal actions
arising in the normal course of our business. At December 31, 2009,
we were not involved in any legal proceedings, the outcome of which would be
material to our financial condition or results of operations.
ITEM
4.
SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
[Reserved]
PART
II
ITEM
5.
MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
(a)
|
The
information required by this item is incorporated by reference to our
Annual Report to Stockholders which is attached as Exhibit 13 hereto. No
equity securities were sold during the year ended December 31, 2009 that
were not registered under the Securities
Act.
|
|
(b)
|
Not
applicable.
|
|
(c)
|
The
following table presents for the periods indicated a summary of the
purchases made by or on behalf of First Clover Leaf Financial Corp. of
shares of its common stock.
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs(1)
|
||||||||||||
October
1, 2009 through October 31, 2009
|
63,437 | $ | 7.55 | 63,437 | 74,862 | |||||||||||
November
1, 2009 through November 30, 2009
|
6,441 | $ | 7.44 | 6,441 | 68,421 | |||||||||||
December
1, 2009 through December 31, 2009
|
45,600 | $ | 7.45 | 45,600 | 22,821 | |||||||||||
Total
|
115,478 | 115,478 |
(1)The
Company’s board of directors approved a stock repurchase program on November 12,
2008 for the repurchase of up to 924,480 shares of common stock, and on December
11, 2008, they increased the number of shares that may be repurchased pursuant
to that plan by an additional 382,641 shares.
ITEM
6.
SELECTED FINANCIAL
DATA
Incorporated
by reference to our Annual Report to Stockholders included as Exhibit 13 to this
Form 10-K.
39
ITEM
7.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
information contained in the section captioned “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” is incorporated
herein by reference to our Annual Report to Stockholders.
ITEM
7A.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Incorporated
by reference to the Annual Report to Stockholders included as Exhibit 13 to this
Form 10-K.
ITEM
8.
FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The
consolidated financial statements included in our Annual Report to Stockholders
included as Exhibit 13 to this Form 10-K are incorporated herein by
reference.
ITEM
9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS AND
PROCEDURES
(a) Under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end
of the period covered by this report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective in timely alerting them to the material
information relating to us (or our consolidated subsidiaries) required to be
included in our periodic SEC filings.
There
were no significant changes made in our internal controls during the period
covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
(b) Management’s
annual report on internal control over financial reporting.
Management
of First Clover Leaf Financial Corp. (the “Company”) is responsible for
establishing and maintaining adequate internal control over financial
reporting.
The
Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
40
controls
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009, based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
“Internal Control-Integrated Framework.” Based on the assessment,
management determined that, as of December 31, 2009, the Company’s internal
control over financial reporting is effective, based on those
criteria.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to rules of the Securities
and Exchange Commission that permit the Company to provide only the management’s
report in this annual report.
ITEM
9B.
OTHER
INFORMATION
None.
PART
III
ITEM
10.
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
Information
concerning directors and executive officers of First Clover Leaf Financial Corp.
is incorporated herein by reference from the Proxy Statement, specifically the
section captioned “Proposal I—Election of Directors.”
ITEM
11.
EXECUTIVE
COMPENSATION
Information
concerning executive compensation is incorporated herein by reference from the
Proxy Statement; specifically the section captioned “Executive
Compensation.”
ITEM
12.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information
concerning security ownership of certain owners and management is incorporated
herein by reference from the Proxy Statement, specifically the section captioned
“Voting Securities and Principal Holder Thereof.”
ITEM
13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information
concerning relationships and transactions is incorporated herein by reference
from the Proxy Statement, specifically the section captioned “Transactions with
Certain Related Persons.”
ITEM
14.
PRINCIPAL ACCOUNTANT FEES
AND SERVICES
Information
concerning principal accountant fees and services is incorporated herein by
reference from the Proxy Statement; specifically the section captioned “Proposal
II-Ratification of Appointment of Auditors.”
41
PART
IV
ITEM
15.
EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
The
following exhibits are either filed or attached as part of this report or are
incorporated herein by reference:
|
3.1
|
Articles
of Incorporation of First Clover Leaf Financial Corp.
(1)
|
|
3.2
|
Bylaws
of First Clover Leaf Financial Corp.
(1)
|
|
4.
|
Form
of common stock certificate of First Clover Leaf Financial Corp.
(1)
|
|
10.1
|
Employee
Stock Ownership Plan (2)
|
|
10.2
|
Description
of Bonus Plan (2)
|
|
10.3
|
Amended
and Restated Employment Agreement of Donald
Engelke
|
|
10.4
|
Amended
and Restated Employment Agreement of Dennis M.
Terry
|
|
10.5
|
Amended
and Restated Employment Agreement of Lisa M.
Fowler
|
|
10.6
|
Amended
and Restated Employment Agreement of Darlene F.
McDonald
|
|
Portions
of Annual Report to Stockholders
|
|
14
|
Code
of Conduct (3)
|
|
Subsidiaries
of the Registrant
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|
______________________________
(1)
|
Incorporated
by reference to the Registration Statement on Form SB-2 of First Clover
Leaf Financial Corp. (File No. 333-132423), originally filed with the
Securities and Exchange Commission on March 14,
2006.
|
(2)
|
Incorporated
by reference to the Registration Statement on Form SB-2 of First Federal
Financial Services, Inc. (File No. 333- 113615), originally filed with the
Securities and Exchange Commission on March 15,
2004.
|
(3)
|
Incorporated
by reference to the Annual Report on Form 10-KSB of First Federal
Financial Services, Inc for the year ended December 31, 2004, filed with
the Commission on March 31,
2005.
|
42
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
First
Clover Leaf Financial Corp.
|
||
Date:
March 31, 2010
|
By:
|
/s/ Dennis M. Terry
|
Dennis
M. Terry, President and
|
||
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By:
|
/s/ Dennis M. Terry
|
By:
|
/s/ Joseph Helms
|
|
Dennis
M. Terry, President, and Chief
|
Joseph
Helms
|
|||
Executive
Officer and Director
|
Chairman
of the Board
|
|||
(Principal
Executive Officer)
|
||||
Date:
March 31, 2010
|
Date:
March 31, 2010
|
|||
By:
|
/s/ Darlene F. McDonald
|
By:
|
/s/ Nina Baird
|
|
Darlene
F. McDonald, Senior Vice President
|
Nina
Baird
|
|||
and
Chief Financial Officer
|
Director
|
|||
(Principal
Financial and Accounting Officer)
|
||||
Date:
March 31, 2010
|
Date:
March 31, 2010
|
|||
By:
|
/s/ Harry Gallatin
|
By:
|
/s/ Gary Niebur
|
|
Harry
Gallatin
|
Gary
Niebur
|
|||
Director
|
Director
|
|||
Date:
March 31, 2010
|
Date:
March 31, 2010
|
|||
By:
|
/s/ Gerard Schuetzenhofer
|
By:
|
/s/ Joseph Stevens
|
|
Gerard
Schuetzenhofer
|
Joseph
Stevens
|
|||
Director
|
Director
|
|||
Date:
March 31, 2010
|
Date:
March 31, 2010
|
43
By:
|
/s/ Donald Engelke
|
By:
|
/s/ Joseph J. Gugger
|
|
Donald
Engelke
|
Joseph
J. Gugger
|
|||
Director
|
Director
|
|||
Date:
March 31, 2010
|
Date:
March 31, 2010
|
|||
By:
|
/s/ Dennis E. Ulrich
|
By:
|
/s/ Kenneth Highlander
|
|
Dennis
E. Ulrich
|
Kenneth
Highlander
|
|||
Director
|
Director
|
|||
Date:
March 31, 2010
|
Date:
March 31, 2010
|
|||
By:
|
/s/ Robert W. Schwartz
|
|||
Robert
W. Schwartz
|
||||
Director
|
||||
Date:
March 31, 2010
|
44